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Optimal Military Spending in the US: A Time Series Analysis

Author

Listed:
  • Giorgio d'Agostino

    (University of Perugia and UWE, Bristol)

  • Luca Pieroni

    () (University of Perugia and UWE, Bristol)

  • J Paul Dunne

    () (Department of Economics, British University in Egypt and UWE, Bristol)

Abstract

This paper extends previous work on the optimal size of government spend- ing by including nested functional decompositions of military spending into consumption and investment. Post World War II US data are then used to estimate nested non-linear growth models using semiparametric methods. As expected, investment in military and non-military expenditure are both found to be productive expenditures. Moreover there is little evidence to suggest that current military spending is having a negative impact on economic growth in the US, while civilian consumption only tends to have only a weak impact. This does not imply that society will necessarily bene?t from a reallocation of more spending to the military sector, nor that it is the best way to achieve economic growth. It does suggest that the US economy is not necessarily being hindered by its current military burden.

Suggested Citation

  • Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2009. "Optimal Military Spending in the US: A Time Series Analysis," Working Papers 0903, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
  • Handle: RePEc:uwe:wpaper:0903
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    File URL: http://carecon.org.uk/DPs/0903.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. Charles I. Jones, 1995. "Time Series Tests of Endogenous Growth Models," The Quarterly Journal of Economics, Oxford University Press, vol. 110(2), pages 495-525.
    2. Aschauer, David Alan, 1989. "Is public expenditure productive?," Journal of Monetary Economics, Elsevier, vol. 23(2), pages 177-200, March.
    3. Barro, Robert J, 1990. "Government Spending in a Simple Model of Endogenous Growth," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 103-126, October.
    4. Jesús Crespo Cuaresma & Gerhard Reitschuler, 2004. "A non-linear defence-growth nexus? evidence from the US economy," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 71-82, February.
    5. Devarajan, Shantayanan & Swaroop, Vinaya & Heng-fu, Zou, 1996. "The composition of public expenditure and economic growth," Journal of Monetary Economics, Elsevier, vol. 37(2-3), pages 313-344, April.
    6. Kneller, Richard & Bleaney, Michael F. & Gemmell, Norman, 1999. "Fiscal policy and growth: evidence from OECD countries," Journal of Public Economics, Elsevier, vol. 74(2), pages 171-190, November.
    7. Shieh, Jhy-yuan & Lai, Ching-chong & Chang, Wen-ya, 2002. "The impact of military burden on long-run growth and welfare," Journal of Development Economics, Elsevier, vol. 68(2), pages 443-454, August.
    8. Ramey, Valerie A. & Shapiro, Matthew D., 1998. "Costly capital reallocation and the effects of government spending," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 48(1), pages 145-194, June.
    9. J Paul Dunne & Mehmet Uye, 2009. "Military Spending and Development," Working Papers 0902, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    10. Luca Pieroni, 2007. "Military Spending and Economic Growth," Working Papers 0708, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    11. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
    12. Michael Gerace, 2002. "US Military Expenditures and Economic Growth: Some Evidence from Spectral Methods," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(1), pages 1-11.
    13. Stefan Mittnik & Thorsten Neumann, 2003. "Time-Series Evidence on the Nonlinearity Hypothesis for Public Spending," Economic Inquiry, Western Economic Association International, vol. 41(4), pages 565-573, October.
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    Cited by:

    1. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2010. "Assessing the Effects of Military Expenditure on Growth," Working Papers 1012, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.

    More about this item

    Keywords

    Economic growth; productive state spending; military spending; semi-parametric estimation;

    JEL classification:

    • H50 - Public Economics - - National Government Expenditures and Related Policies - - - General
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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