Does Military Spending Nonlinearly Affect Economic Growth in South Africa?

Abstract

Using annual data collected from 1988 to 2015, this study provides evidence of a non-linear relationship between military spending, economic growth and other growth determinants for the South African economy. The empirical study is based on estimates of a logistic smooth transition regression (LSTR) model and our empirical results point to an inverted U-shaped relationship between military spending and economic growth for the data. Furthermore, our empirical results suggest that the current levels of military spending, as a component of total government expenditure, are too high in the South African economy and need to be transferred towards more productive non-military expenditure in order to improve the performance of economic growth and other growth determinants.

Keywords:

• Military expenditure
• non-military expenditure
• economic growth
• investment
• labour, exports
• South Africa
• sub-Saharan Africa
• developing country
• smooth transition regression (STR) model

JEL classifications:

• C32
• H56
• O40

Acknowledgements

The useful comments and constructive suggestions by two anonymous referees helped improve the paper and are gratefully acknowledged. The usual disclaimer applies.