Modeling the Defense-Growth Nexus in a Post-Conflict Country: A Piecewise Linear Approach
University of Goettingen, Ibero-America Institute for Economic Research Discussion Paper No. 97
25 Pages Posted: 19 Jul 2004
Date Written: February 2004
The defense-growth nexus is investigated empirically using longitudinal data for Guatemala and allowing the effect of defense spending on growth to be nonlinear. Using recently developed econometric methods involving threshold regressions, evidence of a level-dependent effect of military expenditure on GDP growth is found: a positive and significant externality effect of defense spending prevails for relatively low levels of defense spending and becomes negative, albeit insignificant, for higher levels.
Keywords: Guatemala, defense expenditures, nonlinearity, economic growth, externality effect
JEL Classification: E13, C22, H56
Suggested Citation: Suggested Citation