Defense Spending and State Economic Growth*

Abstract

Little evidence is currently available on the regional growth effects of federal defense spending. In this study, econometric models for state personal income and manufacturing employment between 1976 and 1985 are specified and estimated. Pooled cross-sectional time-series data are used, and the estimation procedure corrects for serial correlation, heteroscedasticity, and contemporaneous cross-sectional correlation. The results indicate that aggregate defense spending has a positive effect on both growth measures. However, when defense expenditures are disaggregated, only investment-type outlays appear to consistently affect state economic growth.

Who Benefits from State and Local Economic Development Policies?

“…Where no specification was clearly preferred, I averaged estimates across all reported specifications. (Two exceptions to this rule are the studies by Helms (1985) and Mehay and Solnick (1990); see notes on these studies for details.) The elasticities used in the calculations summarized in table 2.3 are for the business activity variable that is most closely related to total business activity.…”

Military Spending and Economic Well-Being in the American States: The Post-Vietnam War Era

“…Spending on defense procurement and personnel was responsive to aggregate concentration, attesting to the influence of powerful corporate actors in the private sector. Similarly, in one of the few state-level studies of this kind, Mehay and Solnick (1990) found that aggregate military spending positively affected economic growth, but once disaggregated, only increases in investment-type outlays increased growth.…”

“…This variable taps all non-military federal funds flowing into the state and controls for alternative ways in which federal funding might affect economic well-being. Following Mintz and Hicks (1984) and Mehay and Solnick (1990), we disaggregated state-level military spending into two components. Defense contracts (t-1) is the percent of the state's GSP from government contracts through procurement of defense-related materials from companies in those states; while defense personnel (t-1) is the percent of the state's GSP devoted to spending on civilian and military defense personnel (including retirement and veteran's benefits).…”

US military expenditures to protect the use of Persian Gulf oil for motor vehicles

“…However, others have found that reductions in defense spending might hurt the economy (Atesoglu and Mueller, 1990;Thomas et al, 1991;Mehay and Solnick, 1990), and many analysts have found no links between defense spending and economic growth (Kinsella, 1990;Gold and Adams, 1990;Dunne, 1990;Payne and Ross, 1992;Mintz, 1990, 1991;Gerace, 2002). Gerace (2002) sums up prevailing views well, observing that ''the net effect of military expenditures on economic growth is theoretically ambiguous'' (p. 2), and that ''there is no general consensus on whether military spending positively or negatively affects economic growth'' (p. 1).…”