This paper undertakes an empirical analysis of the economic effects of military spending on the South African economy. It estimates a neo-classical model common in the literature at the level of the macroeconomy and at the level of the manufacturing sector. An attempt is made to improve upon the model by allowing the data to determine the dynamic structure of the model through an ARDL procedure. No significant impact of military spending is found in aggregate, but there is a significant negative impact for the manufacturing sector. This suggests that the cuts in domestic military procurement that have occurred since 1989 could lead to improved economic performance in South Africa through their impact on the manufacturing sector.Military spending, Growth, South Africa, Externalities,

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Understanding the factors that determine the military burdens in developing economies is an important area of research. Previous research has suggested that to understand the dynamics of the relationship between military burden and economic and strategic factors requires detailed case studies. This article provides an analysis of the South African experience, a particularly valuable case study given the importance of the military sector to the apartheid system, the marked reductions in military spending that have taken place under the new government and the availability of good time-series data. A detailed analysis of the trends in military spending and the changing structure of government spending over the past 40 years is undertaken. A simple model based on a general theory of the demand for military spending provides the basis for an investigation of the relative importance of strategic and other social and economic factors, and is found to perform surprisingly well. The results of the regression analysis suggest that the trends in South Africa's military spending (for the period 1963-97) could be explained as an autoregressive process in military burden conditioned on a number of country-specific strategic factors. Imposition of the mandatory UN arms embargo in 1977 and the change in regime in 1994 had significant negative impacts, while involvement in the Angolan War and the early years of the Republic had positive impacts.

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