IDEAS home Printed from https://ideas.repec.org/p/ctn/dpaper/2019-01.html
   My bibliography  Save this paper

Military Expenditure, Investment and Growth

Author

Listed:
  • J. Paul Dunne

    (School of Economics, University of Cape Town)

  • Ron P Smith

    (School of Economics Mathematics and Statistics, Birkbeck College)

Abstract

This paper considers the issues involved in estimating the effect of military expenditure on growth and the reasons for the lack of consensus in the literature. It briefly reviews the economic theory, emphasising the difficult identification issues involved in determining the interaction between military expenditure and output and discusses econometric methods for panels. It then takes advantage of the extended SIPRI military spending to construct a relatively large balanced panel of countries for the period 1960-2014. Rather than the usual focus on the direct relation between military spending on growth, it focusses upon the investment channel. It provides estimates of various models examining the interaction between the three variables and finds that the data do not suggest any strong relations between military expenditure and either investment or growth. This is not unexpected given the theoretical and econometric problems identified.

Suggested Citation

  • J. Paul Dunne & Ron P Smith, 2019. "Military Expenditure, Investment and Growth," School of Economics Macroeconomic Discussion Paper Series 2019-01, School of Economics, University of Cape Town.
    • Handle: RePEc:ctn:dpaper:2019-01
    as

    Download full text from publisher

    File URL: https://docs.google.com/viewer?a=v&pid=sites&srcid=ZGVmYXVsdGRvbWFpbnxzb2VtYWNyb2Vjb3xneDoyOWYyZjA2OTY2ZTRlMDE4
    File Function: Full text
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. d’Agostino, Giorgio & Dunne, J. Paul & Pieroni, Luca, 2016. "Government Spending, Corruption and Economic Growth," World Development, Elsevier, vol. 84(C), pages 190-205.
    2. J. Paul Dunne & Nan Tian, 2013. "Military expenditure and economic growth: A survey," Economics of Peace and Security Journal, EPS Publishing, vol. 8(1), pages 5-11, April.
    3. Giorgio d’Agostino & John Paul Dunne & Luca Pieroni, 2019. "Military Expenditure, Endogeneity and Economic Growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 30(5), pages 509-524, July.
    4. Malcolm Knight & Norman Loayza & Delano Villanueva, 1996. "The Peace Dividend: Military Spending Cuts and Economic Growth," IMF Staff Papers, Palgrave Macmillan, vol. 43(1), pages 1-37, March.
    5. Malizard, Julien, 2015. "Does military expenditure crowd out private investment? A disaggregated perspective for the case of France," Economic Modelling, Elsevier, vol. 46(C), pages 44-52.
    6. Steve Bond & Asli Leblebicioglu & Fabio Schiantarelli, 2010. "Capital accumulation and growth: a new look at the empirical evidence," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 25(7), pages 1073-1099, November/.
    7. Norman Gemmell & Richard Kneller & Ismael Sanz, 2016. "Does the Composition of Government Expenditure Matter for Long-Run GDP Levels?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 78(4), pages 522-547, August.
    8. Lee, Kevin & Pesaran, M Hashem & Smith, Ron, 1997. "Growth and Convergence in Multi-country Empirical Stochastic Solow Model," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(4), pages 357-392, July-Aug..
    9. Jan Willem Gunning & Paul Collier, 1999. "Explaining African Economic Performance," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 64-111, March.
    10. Swamy, P A V B, 1970. "Efficient Inference in a Random Coefficient Regression Model," Econometrica, Econometric Society, vol. 38(2), pages 311-323, March.
    11. Pesaran, M. Hashem & Smith, Ron, 1995. "Estimating long-run relationships from dynamic heterogeneous panels," Journal of Econometrics, Elsevier, vol. 68(1), pages 79-113, July.
    12. Hsiao,Cheng & Pesaran,M. Hashem & Lahiri,Kajal & Lee,Lung Fei (ed.), 1999. "Analysis of Panels and Limited Dependent Variable Models," Cambridge Books, Cambridge University Press, number 9780521631693, September.
    13. d'Agostino, G. & Dunne, J.P. & Pieroni, L., 2016. "Corruption and growth in Africa," European Journal of Political Economy, Elsevier, vol. 43(C), pages 71-88.
    14. N. Gregory Mankiw & David Romer & David N. Weil, 1992. "A Contribution to the Empirics of Economic Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 107(2), pages 407-437.
    15. Alvin Birdi & J. Paul Dunne, 2002. "South Africa: An Econometric Analysis of Military Spending and Economic Growth," Palgrave Macmillan Books, in: Jurgen Brauer & J. Paul Dunne (ed.), Arming the South, chapter 9, pages 221-233, Palgrave Macmillan.
    16. J. Paul Dunne & Ron Smith & Dirk Willenbockel, 2005. "Models Of Military Expenditure And Growth: A Critical Review," Defence and Peace Economics, Taylor & Francis Journals, vol. 16(6), pages 449-461.
    17. Deger, Saadet & Sen, Somnath, 1995. "Military expenditure and developing countries," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 11, pages 275-307, Elsevier.
    18. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287, September.
    19. J. Paul Dunne & Nan Tian, 2016. "Military expenditure and economic growth, 1960–2014," Economics of Peace and Security Journal, EPS Publishing, vol. 11(2), pages 50-56, October.
    20. Orazio P. Attanasio & Lucio Picci & Antonello E. Scorcu, 2000. "Saving, Growth, and Investment: A Macroeconomic Analysis Using a Panel of Countries," The Review of Economics and Statistics, MIT Press, vol. 82(2), pages 182-211, May.
    21. Elisa Cavatorta & Ron P. Smith, 2017. "Factor Models in Panels with Cross-sectional Dependence: An Application to the Extended SIPRI Military Expenditure Data," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 437-456, July.
    22. Smith, Ronald P., 1980. "Military expenditure and investment in OECD countries, 1954-1973," Journal of Comparative Economics, Elsevier, vol. 4(1), pages 19-32, March.
    23. Coakley, Jerry & Kulasi, Farida & Smith, Ron, 1998. "The Feldstein-Horioka Puzzle and Capital Mobility: A Review," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 3(2), pages 169-188, April.
    24. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    25. Smith, Ron, 1995. "The demand for military expenditure," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 4, pages 69-87, Elsevier.
    26. Alptekin, Aynur & Levine, Paul, 2012. "Military expenditure and economic growth: A meta-analysis," European Journal of Political Economy, Elsevier, vol. 28(4), pages 636-650.
    27. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
    28. Christos Kollias & Suzanna-Maria Paleologou, 2019. "Military spending, economic growth and investment: a disaggregated analysis by income group," Empirical Economics, Springer, vol. 56(3), pages 935-958, March.
    29. Sam Perlo-Freeman, 2017. "SIPRI’s New Long Data-set on Military Expenditure: The Successes and Methodological Pitfalls," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 404-421, July.
    30. J. Paul Dunne & Nan Tian, 2015. "Military Expenditure, Economic Growth and Heterogeneity," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(1), pages 15-31, February.
    31. Pesaran, M. Hashem & Shin, Yongcheol, 1996. "Cointegration and speed of convergence to equilibrium," Journal of Econometrics, Elsevier, vol. 71(1-2), pages 117-143.
    32. Giorgio d’Agostino & J. Paul Dunne & Luca Pieroni, 2017. "Does Military Spending Matter for Long-run Growth?," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 429-436, July.
    33. Keith Hartley & Todd Sandler (ed.), 1995. "Handbook of Defense Economics," Handbook of Defense Economics, Elsevier, edition 1, volume 1, number 1.
    34. Smith, R P, 1977. "Military Expenditure and Capitalism," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 1(1), pages 61-76, March.
    35. James Murdoch & Chung-Ron Pi & Todd Sandler, 1997. "The impact of defense and non-defense public spending on growth in Asia and Latin America," Defence and Peace Economics, Taylor & Francis Journals, vol. 8(2), pages 205-224.
    36. Sam Perlo-Freeman & Elisabeth Skons, 2016. "Snakes and ladders: The development and multiple reconstructions of the Stockholm International Peace Research Institute’s military expenditure data," Economics of Peace and Security Journal, EPS Publishing, vol. 11(2), pages 5-13, October.
    37. Ram, Rati, 1995. "Defense expenditure and economic growth," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 10, pages 251-274, Elsevier.
    38. Christos Kollias & Suzanna-Maria Paleologou, 2016. "Investment, growth, and defense expenditure in the EU15: Revisiting the nexus using SIPRI’s new consistent dataset," Economics of Peace and Security Journal, EPS Publishing, vol. 11(2), pages 28-37, October.
    39. J. Paul Dunne & Nan Tian, 2019. "Military Expenditures and Economic Growth," School of Economics Macroeconomic Discussion Paper Series 2019-05, School of Economics, University of Cape Town.
    40. Todd Sandler & James C. Murdoch, 2000. "On sharing NATO defence burdens in the 1990s and beyond," Fiscal Studies, Institute for Fiscal Studies, vol. 21(3), pages 297-327, September.
    41. JP Dunne & E Nikolaidou & R Smith, 2002. "Military Spending, Investment And Economic Growth In Small Industrialising Economies," South African Journal of Economics, Economic Society of South Africa, vol. 70(5), pages 789-790, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Kyriakos Emmanouilidis, 2024. "Military Spending and Economic Output: A Decomposition Analysis of the US Military Budget," Defence and Peace Economics, Taylor & Francis Journals, vol. 35(2), pages 243-263, February.
    2. A.K. SUSILO & Dyah Wulan SARI & I Nengah PUTRA & N.A. PRATIWI, 2022. "Economic Growth And Military Expenditure In Developing Countries During Covid-19 Pandemic," Applied Econometrics and International Development, Euro-American Association of Economic Development, vol. 22(1), pages 19-38.
    3. Oasis Kodila-Tedika & Sherif Khalifa, 2021. "African Junta and Defence Spending: A Capture Effect or Self-preservation? [A Theory of Military Dictatorships]," Journal of African Economies, Centre for the Study of African Economies, vol. 30(3), pages 285-300.
    4. Gentilucci, Eleonora, 2020. "A causality analysis. Military expenditures and economic growth in USA and China," MPRA Paper 104848, University Library of Munich, Germany.
    5. J. Paul Dunne & Nan Tian, 2019. "Military Expenditures and Economic Growth," School of Economics Macroeconomic Discussion Paper Series 2019-05, School of Economics, University of Cape Town.
    6. Christos Kollias & Panayiotis Tzeremes, 2022. "Militarization, investment, and economic growth 1995–2019," Economics of Peace and Security Journal, EPS Publishing, vol. 17(1), pages 17-29, April.
    7. José L Torres, 2020. "The production of national defense and the macroeconomy," PLOS ONE, Public Library of Science, vol. 15(10), pages 1-18, October.
    8. J. Paul Dunne & Christine S. Makanza, 2019. "Nonlinear Effects of Military Spending on Economic Growth in Sub-Saharan Africa," School of Economics Macroeconomic Discussion Paper Series 2019-04, School of Economics, University of Cape Town.
    9. Ray-Ming Chen, 2022. "Does the growth of military hard power back up the growth of monetary soft power via data-driven probabilistic optimal relations?," Palgrave Communications, Palgrave Macmillan, vol. 9(1), pages 1-6, December.
    10. Kiryl Rudy, 2022. "Military Economy and Economic Growth: Bidirectional Effects in Transition Economies of Eurasia," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(3), pages 285-300, September.
    11. Efayena Obukohwo Oba & Olele Enoh Hilda, 2024. "Analysis of the Relationship Between Military Expenditure and Investment in the Economic Community of West African States: A Heterogeneous Panel Data Approach," Studia Universitatis „Vasile Goldis” Arad – Economics Series, Sciendo, vol. 34(4), pages 58-77.
    12. Dimitrios Karamanis, 2022. "Defence partnerships, military expenditure, investment, and economic growth: an analysis in PESCO countries," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 173, Hellenic Observatory, LSE.
    13. Jordan Becker & J Paul Dunne, 2023. "Military Spending Composition and Economic Growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 34(3), pages 259-271, April.
    14. Becker Jordan & Kuokštytė Ringailė & Kuokštis Vytautas, 2023. "The Political Economy of Transatlantic Security – A Policy Perspective," The Economists' Voice, De Gruyter, vol. 20(1), pages 55-77, June.
    15. Kyriakos Emmanouilidis & Christos Karpetis, 2022. "Cross–Country Dependence, Heterogeneity and the Growth Effects of Military Spending," Defence and Peace Economics, Taylor & Francis Journals, vol. 33(7), pages 842-856, October.
    16. Tsitouras Antonis & Tsounis Nicholas, 2024. "Military Outlays and Economic Growth: A Nonlinear Disaggregated Analysis for a Developed Economy," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 30(3), pages 341-391.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. J. Paul Dunne & Nan Tian, 2019. "Military Expenditures and Economic Growth," School of Economics Macroeconomic Discussion Paper Series 2019-05, School of Economics, University of Cape Town.
    2. Giorgio d’Agostino & J. Paul Dunne & Luca Pieroni, 2017. "Does Military Spending Matter for Long-run Growth?," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(4), pages 429-436, July.
    3. Christos Kollias & Suzanna-Maria Paleologou, 2019. "Military spending, economic growth and investment: a disaggregated analysis by income group," Empirical Economics, Springer, vol. 56(3), pages 935-958, March.
    4. Dimitrios Karamanis, 2022. "Defence partnerships, military expenditure, investment, and economic growth: an analysis in PESCO countries," GreeSE – Hellenic Observatory Papers on Greece and Southeast Europe 173, Hellenic Observatory, LSE.
    5. Kyriakos Emmanouilidis & Christos Karpetis, 2022. "Cross–Country Dependence, Heterogeneity and the Growth Effects of Military Spending," Defence and Peace Economics, Taylor & Francis Journals, vol. 33(7), pages 842-856, October.
    6. Charles Shaaba Saba & Nicholas Ngepah, 2019. "Military expenditure and economic growth: evidence from a heterogeneous panel of African countries," Economic Research-Ekonomska Istraživanja, Taylor & Francis Journals, vol. 32(1), pages 3586-3606, January.
    7. Garfinkel, Michelle R. & Skaperdas, Stergios (ed.), 2012. "The Oxford Handbook of the Economics of Peace and Conflict," OUP Catalogue, Oxford University Press, number 9780195392777.
    8. Christos Kollias & Panayiotis Tzeremes, 2022. "Militarization, investment, and economic growth 1995–2019," Economics of Peace and Security Journal, EPS Publishing, vol. 17(1), pages 17-29, April.
    9. Kyriakos Emmanouilidis & Christos Karpetis, 2020. "The Defense–Growth Nexus: A Review of Time Series Methods and Empirical Results," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(1), pages 86-104, January.
    10. Lukasz Wiktor Olejnik, 2023. "Economic growth and military expenditure in the countries on NATOʼs Eastern flank in 1999–2021," Bank of Estonia Working Papers wp2023-2, Bank of Estonia, revised 09 May 2023.
    11. Hou Na & Chen Bo, 2014. "Military Spending and Economic Growth in An Augmented Solow Model: A Panel Data Investigation for OECD Countries," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 20(3), pages 395-409, August.
    12. Charles Shaaba Saba & Nicholas Ngepah & Christian Nsiah, 2020. "Convergence in military expenditure and economic growth in Africa and its regional economic communities: evidence from a club clustering algorithm," Cogent Economics & Finance, Taylor & Francis Journals, vol. 8(1), pages 1832344-183, January.
    13. Ünal Töngür & Adem Yavuz Elveren, 2017. "The nexus of economic growth, military expenditures, and income inequality," Quality & Quantity: International Journal of Methodology, Springer, vol. 51(4), pages 1821-1842, July.
    14. J. Paul Dunne & Christine S. Makanza, 2019. "Nonlinear Effects of Military Spending on Economic Growth in Sub-Saharan Africa," School of Economics Macroeconomic Discussion Paper Series 2019-04, School of Economics, University of Cape Town.
    15. Charles Shaaba Saba & Nicholas Ngepah, 2022. "Nexus between defence spending, economic growth and development: evidence from a disaggregated panel data analysis," Economic Change and Restructuring, Springer, vol. 55(1), pages 109-151, February.
    16. Innocent.U. Duru & Millicent Adanne Eze & Bartholomew.O.N. Okafor & Abubakar Yusuf & Lawrence.O. Ede & Abubakar Sadiq Saleh, 2021. "Military Outlay and Economic Growth: The Scenarios of Lake Chad Basin Countries of the Republic of Chad and Nigeria," Growth, Asian Online Journal Publishing Group, vol. 8(1), pages 12-26.
    17. Nusrate Aziz & M. Niaz Asadullah, 2017. "Military spending, armed conflict and economic growth in developing countries in the post-Cold War era," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(1), pages 47-68, January.
    18. Charles Shaaba Saba & Nicholas Ngepah, 2019. "A cross-regional analysis of military expenditure, state fragility and economic growth in Africa," Quality & Quantity: International Journal of Methodology, Springer, vol. 53(6), pages 2885-2915, November.
    19. Christos Kollias & Suzanna-Maria Paleologou & Panayiotis Tzeremes & Nickolaos Tzeremes, 2017. "Defence expenditure and economic growth in Latin American countries: evidence from linear and nonlinear causality tests," Latin American Economic Review, Springer;Centro de Investigaciòn y Docencia Económica (CIDE), vol. 26(1), pages 1-25, December.
    20. Shakoor Ahmed & Khorshed Alam & Afzalur Rashid & Jeff Gow, 2020. "Militarisation, Energy Consumption, CO2 Emissions and Economic Growth in Myanmar," Defence and Peace Economics, Taylor & Francis Journals, vol. 31(6), pages 615-641, August.

    More about this item

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ctn:dpaper:2019-01. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Kevin Kotze (email available below). General contact details of provider: https://edirc.repec.org/data/seuctza.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.