Military Spending and Economic Growth in the OECD Countries

Abstract

Cross-national comparisons of industrialized countries indicate that countries with a high defense burden (military spending as a share of GDP) tend to have lower rates of economic growth than do countries with a low defense burden. On the other hand, longitudinal data for several industrial countries indicate that economic growth is higher in periods with a high defense burden. This study attempts to overcome this apparent contradiction by pooling cross-sectional and longitudinal data within the framework of a model of economic growth. The data are for 17 OECD countries for the period . A simple mathematical model based on economic theory is used to analyze the interrelationships between economic growth, manufacturing output, investment, and military spending, both for the whole sample and for three relatively homogeneous subgroups of countries. Confronting the model with data, military spending was generally found to have a positive impact on manufacturing output, but a negative effect on investment. These two effects have an opposite impact on economic growth. The net effect is that military spending has an overall negative effect on economic growth for the whole sample of countries and for the subgroups, except for the Mediterranean countries.

Is there a link between politics and stock returns? A literature survey

“…The impact of warmongering on the economy and investors' sentiment is potentially immense. Some researchers, such as Deger and Smith (1983) or Cappelen et al (1984), documented that large military expenditure retards economic growth and investment. These findings seem to hold for both OECD and less developed countries.…”

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.…”

“…Furthermore, some studies consider relatively more homogenous samples. These are studies by Cappelen et al (1984) and Landau (1996), in which both use a sample of OECD countries and Kollias et al (2007) concentrates on EU countries. Gyimah-Brempong (1989) and Dunne and Mohammed (1995) particularly look at a sample of African countries rather than a general of sample LDCs.…”

A Dynamic Panel Data Model for Analyzingthe Relationship Between Military Expenditure and Economic Growth and Population in 54 Less Developed Countries.

“…Literature Review:-The literature on military spending and economic growth dated back to the seminal work by Benoit (1973) Conversely, other studies conclude that heightened military spending exerts a negative relationship with economic growth due to a tendency to crowd out investment and the wider impacts of tax increases that are often necessary to finance the new expenditure (Smith, 1980;Cappelen et al, 1984;Dunne et al, 2001). Furthermore, other studies found that the relationship between military expenditure and economic growth might be mixed, such as (Chowdhury, 1991 Moreover, even where defense expenditure exerts a positive relationship with economic growth, it may nonetheless prove to a sub-optimal means of economic stimulation due to the greater effect exerted by non-military expenditure (Batchelor et al, 2000;Shieh et al, 2002).…”