Military Outlays and Economic Growth: A Nonlinear Disaggregated Analysis for a Developed Economy

Abstract

There is a dearth of comprehensive studies examining the compositional and asymmetric effects of defence spending on simultaneous economic growth. This study uses the Nonlinear Autoregressive Distributed Lag (NARDL) approach to analyse how disaggregated defence spending affects economic growth in Greece in the short and long term. The results hold significant theoretical and practical policy implications. First, military spending boosts economic growth in the short term but hampers it in the long run. Second, the long-term effects of positive and negative defence spending shocks are distinct, with positive shocks more detrimental to economic growth than the benefits of negative shocks. Finally, our study reveals that personnel expenditures have the most significant and enduring effects on economic growth compared to other military spending categories. Based on these results, Greece should adopt a new defence doctrine that relies on extensive personnel reserves, prioritises state intelligence and production technology, and promotes domestic military equipment over expensive foreign options.