Military Expenditure, Threats, and Growth

UC Santa Cruz Economics Working Paper No. 537; UC Santa Cruz Center for International Economics Working Paper No. 03-3

34 Pages Posted: 17 May 2003

See all articles by Joshua Aizenman

Joshua Aizenman

National Bureau of Economic Research (NBER)

Reuven Glick

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies

Multiple version iconThere are 2 versions of this paper

Date Written: March 2003

Abstract

This paper clarifies one of the puzzling results of the economic growth literature: The impact of military expenditure is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. We start by empirical evaluation of the non-linear interactions between military expenditure, external threats, corruption, and other relevant controls. While growth falls with higher levels of military spending, given the values of the other independent variables, we show that military expenditure in the presence of threats increases growth. We explain the presence of these non-linearities in an extended version of Barro and Sala-i-Martin (1995), allowing the dependence of growth on the severity of external threats, and on the effective military expenditure associated with these threats.

Keywords: Economic growth, military expenditure, external threats, corruption

JEL Classification: E62, F43, N10, O41, O47

Suggested Citation

Aizenman, Joshua and Glick, Reuven, Military Expenditure, Threats, and Growth (March 2003). UC Santa Cruz Economics Working Paper No. 537; UC Santa Cruz Center for International Economics Working Paper No. 03-3. Available at SSRN: https://ssrn.com/abstract=390764 or http://dx.doi.org/10.2139/ssrn.390764

Joshua Aizenman (Contact Author)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Reuven Glick

Federal Reserve Bank of San Francisco - Center for Pacific Basin Monetary & Economic Studies ( email )

101 Market Street
San Francisco, CA 94105
United States
415-974-3184 (Phone)
415-974-2168 (Fax)

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