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Military Expenditure, Economic Growth and Heterogeneity

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  • J Paul Dunne

    (SALDRU, School of Economics, University of Cape Town)

  • Nan Tian

    (DPRU, School of Economics, University of Cape Town)

Abstract

This paper examines the impact of military expenditure on economic growth on a large balanced panel, using an exogenous growth model and dynamic panel data methods for 106 countries over the period 1988-2010. A major focus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the model for all of the countries in the panel and finding that military burden has a negative effect on growth in the short and long run, the panel is broken down into various groupings based upon a range of potentially relevant factors and the robustness of the results is evaluated. The factors considered are different levels of income, conflict experience, natural resources abundance, openness and aid. The estimates for the different groups are remarkably consistent with those for the whole panel, providing strong support for the argument that military spending has adverse effects on growth. There are, however, some intriguing results that suggest that for certain types of countries military spending has no significant effect on growth.

Suggested Citation

  • J Paul Dunne & Nan Tian, 2013. "Military Expenditure, Economic Growth and Heterogeneity," SALDRU Working Papers 095, Southern Africa Labour and Development Research Unit, University of Cape Town.
    • Handle: RePEc:ldr:wpaper:095
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    More about this item

    Keywords

    Military expenditure; economic growth; conflict; development;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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