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The economic impact of military expenditures

Listed author(s):
  • Landau, Daniel

The author addresses three questions about military spending in developing countries: What are the levels of (and trends in) military spending as a percentage of gross national product? What impact does peacetime military spending have on growth, government spending on social welfare and infrastructure, and other key economic variables? What major factors influence the level of military spending? The author finds that military spending as a share of GNP generally fell in the 1980s, even in the Middle East and North Africa. The mean level of military expenditure as a share of GNP (MES) was 3.9 percent, well below the peak of 5.3 percent in 1976. In 1989, MES averaged only 2.7 percent in Latin America and 2.0 percent in sub-Saharan Africa - the two regions with the most severe economic problems. He finds no evidence of a negative relationship between military spending as a share of GNP and the peacetime growth rate of developing countries - except where military spending is high. He finds that higher shares of MES are not associated with lower shares of government spending on education, health, and infrastructure. As MES increases, government spending as a share of GNP increases, which allows the level of spending on health, education, and infrastructure to be maintained. The author finds some evidence that increased military spending in the developing countries has a weak negative impact on investment and the balance of trade. He finds no evidence of a statistically significant relationship between military spending and inflation. The most important determinant of peacetime military spending is the spending level of neighboring countries - in other words, the potential external threat. Regional conciliation and disarmament may be an important step toward reduced military spending.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1138.

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Date of creation: 31 May 1993
Handle: RePEc:wbk:wbrwps:1138
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