Arms Trade, Military Spending, and Economic Growth

Abstract

Abstract:This paper surveys some of the theoretical and econometric issues involved in estimating growth models that include military spending. In particular, it critically evaluates the commonly used Feder-Ram model, detailing its problems and limitations and suggesting a more acceptable theoretical approach. It also surveys the econometric issues involved in estimating these models and uses a panel of 28 countries study to evaluate the different approaches and to draw some suggestions for the development of future research. Comments welcome

Military expenditure and economic growth: A meta-analysis

“…Faini et al (1984), Chan (1988), Antonakis (1997), Heo and DeRouen (1998) and DeRouen (2000) are among those carry out a time-series analysis. Whereas, Cappelen et al (1984), Landau (1986, Lipow and Antinori (1995), Blomberg (1996), Stroup and Heckelman (2001), Kollias et al (2007), Yakovlev (2007), apply a cross-country time series model. Furthermore, some studies consider relatively more homogenous samples.…”

“…Barro model is used by Brumm (1997), Stroup and Heckelman (2001), Aizenman and Glick (2006), Yakovlev (2007), among others.…”

“…For detailed discussion see Dunne and Smith (2010). 5 Some also apply the augmented Solow growth model, such as Knight et al (1996), andYakovlev (2007).…”

Guns Versus Butter Tradeoff: The Theory of Defense Quality Factor

“…The fact that each unit of defense expenditure brings an alternative cost due to the abandoned investment opportunities in the framework of scarcity theory generates supply side effects similar to the guns versus butter tradeoff paradigm. Economists asserting that defense expenditures influence economy through the channel of demand fundamentally ground their points on the Keynesian multiplier effect [12]. Namely, in an economy which is not running at full employment of resources, a rise in defense spending causes a rise in aggregate demand.…”

“…First one, similar with the security effects regarded as the fundamental value of defense spending [12], is the investability effect provided by the deterrence cover achieved by joining global and regional defense alliances. Second one is the opportunity of economic development provided by allocating more resources for welfare through reducing security concerns by, again, joining alliances, thus reducing the need for a high defense budget.…”