Does military spending promote social welfare? A comparative analysis of the BRICS and G7 countries

Abstract

Whether military spending is capable of promoting social welfare is currently a controversial issue. The aim of this paper is to investigate how military spending affects the input and output of social welfare (i.e. social welfare expenditures and social welfare index). A panel cointegration analysis and an impulse response function are conducted with multi-country panel data, over two time periods, 1998–2011 and 1993–2007. In addition, to extend a comparative analysis over different economies, BRICS (i.e. Brazil, Russia, India, China, South Africa) and G7 (i.e. the US, Japan, Germany, the UK, France, Italy, Canada) countries are selected as representatives of emerging economies and developed countries, respectively. The empirical results show that military spending enhances social welfare expenditures in developed countries, while the effect is ambiguous in emerging economies. Also, military spending is capable of promoting the social welfare index based on the FMOLS estimation. The comparative analyses indicate that unlike in the G7, the effect of the growth of military spending on the growth of social welfare expenditures is negative and shorter in the BRICS.

Keywords:

• Military spending
• Social welfare
• Comparative analysis
• Panel cointegration
• Impulse response function

JEL Codes:

• F52
• H53
• I31

Acknowledgements

The constructive comments and suggestions by an anonymous referee are gratefully acknowledged. Responsibility for all remaining errors is ours.

Notes

¹ SIPRI is an independent international institute dedicated to research into conflict, armaments, arms control and disarmament.

² We take factual welfare into account, which was introduced in Sen’s social welfare index, and ‘happiness’, ‘life satisfaction’ or other spiritual social welfare statuses are not considered.

³ The null hypothesis of the Hadri test is that all the panels are stationary, and others have the opposite null hypothesis.

⁴ The former appropriates for heterogeneous cointegrated panels, and the latter analyses the cointegrated panel data with a homogeneous long-run covariance structure across cross-sectional units.

Additional information

Funding

This work was financially supported by National Social Science Foundation of China [grant number 15CGL045], National Natural Science Foundation of China [grant number 71473036], Ministry of Education of Jiangsu Province [grant number 2014SJD013], Social Science Research Grant of Southeast University [grant number 2242015S22005] and European Commission.