Economic Growth and Military Expenditure Linkages: A Panel Data Analysis

International Economic Policy, 2 (23), 48-72

25 Pages Posted: 2 Oct 2017

See all articles by Shahid Ahmed

Shahid Ahmed

Jamia Millia Islamia (A Central University) - Economics

Saba Ismail

Jamia Millia Islamia (A Central University)

Date Written: 2015

Abstract

This paper has made an attempt to examine relationship between military expenditure and economic growth using 56 country panel data spanning over 1995—2011. Panel fixed effect model has been estimated for all 56 countries and sub-groups classified on the basis of World Bank income criteria. The results of this study indicate a positive effect of military expenditure on economic growth but this positive effect is negligible compared to the alternative uses of scare resources on non-military expenditure. Thus, the effect of military expenditure on economic growth is very low compared to the effect of expenditure on capital formation, hence military expenditure as a sub-optimal means of increasing economic growth compared to alternative uses of government spending on formation of fixed capital. This study raises an important argument of huge opportunity cost of military expenditure. The present study concludes that the boosting of economic growth through higher military expenditure is neither effective nor efficient way of achieving higher growth in the economy.

Keywords: Economic Growth; Military Expenditure; Fixed Effect Model, Sub-Optimal

JEL Classification: H5, O47, C23

Suggested Citation

Ahmed, Shahid and Ismail, Saba, Economic Growth and Military Expenditure Linkages: A Panel Data Analysis (2015). International Economic Policy, 2 (23), 48-72. Available at SSRN: https://ssrn.com/abstract=3045328

Shahid Ahmed (Contact Author)

Jamia Millia Islamia (A Central University) - Economics ( email )

Jamia Nagar
New Delhi, 110025
India

HOME PAGE: http://jmi.ac.in/economics/faculty-members/Prof_Shahid_Ahmed-1783

Saba Ismail

Jamia Millia Islamia (A Central University) ( email )

Jamia Nagar, New Delhi
Delhi, 110025
India

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