https://orcid.org/0000-0001-6150-7663
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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.
Disclosure statement
No potential conflict of interest was reported by the authors.
Notes
1. More general issues on the ‘peace dividend’, including the short-term effects of military expenditure on output, are surveyed in Dunne (Citation1996), Gleditsch et al. (Citation1996) and Chan (Citation1995).
2. The sensitivity of the results to estimation issues and choice of sample is illustrated by the difference between the results of Attanasio, Picci, and Scorcu (Citation2000) and Bond, Leblebicioglu, and Schiantarelli (Citation2010) on the time-series relationship between investment and growth.
3. The empirical issues in distinguishing between them are discussed in Lee, Pesaran, and Smith (Citation1997).
4. Deger and Sen (Citation1995) discuss these possible linkages within a very similar framework.
5. Military expenditure in the SIPRI database refers to all government spending on current military forces and activities, including salaries and benefits, operational expenses, arms and equipment purchases, military construction, research and development, and central administration, command and support (SIPRI, Citation2014).