The impact of defense and non‐defense public spending on growth in Asia and Latin America∗

The authors gratefully acknowledge the comments of three anonymous referees.

Abstract

For a three‐sector Feder‐Ram framework, we present time‐series, cross‐sectional estimates for two cohorts, consisting of Asian and Latin American countries. The estimates indicate that private investment, and defense and non‐defense public spending are growth promoting for alternative error components representations. For the best error components representation, greater growth enhancement is associated with the two forms of public spending in Asia than in Latin America, while the opposite comparison characterizes private investment. Although defense is growth promoting, an opportunity cost exists insofar as non‐defense spending, financed by defense spending, appears to give a small net boost to growth in Latin America.

Key Words:

• Feder‐Ram model
• Error components models
• Growth and defense spending
• Public spending
• Peace dividend
• Asia
• Latin America
• Panel data

Notes

The authors gratefully acknowledge the comments of three anonymous referees.

Corresponding author.