Economic consequences of a rise in defense spending after September 11, 2001

Abstract

The purpose of this paper is to discuss the effects of a rise in defense spending on key macroeconomic variables since September 11, 2001. For examining the effects of the rise in defense spending, empirical models were developed for GDP, employment, trade deficit, and budget deficit. In addition to estimation results, simulations were made to assess the effect of defense spending employing the empirical models. Findings reveal that the rise in defense spending had a favorable impact on GDP and employment but led to larger trade and budget deficits.

Keywords:

• budget deficit
• defense spending
• employment
• GDP
• trade deficit