Defense spending and economic growth in Latin America: The externalities effects

In an early study of the impact of defense spending on economic growth in Latin America, it was suggested that the military burden hampered growth (Lieuwen, 1962). Recent studies, however, have found the relationship to be positive (Biswas and Ram, 1986; Frederiksen and Looney, 1983). The present study differs from those by considering the relationship between “guns and growth” over time, and by looking at both the overall and externality effects of military spending. The findings demonstrate that defense spending has both positive and negative impacts on economic growth in Latin America, but that there is no net positive effect. This finding will be obscured by research designs which do not disaggregate the effects of military spending into both its size and externality components.

Keywords:

• military spending
• economic growth
• externalities
• Latin America