The Peace Dividend: Military Spending Cuts and Economic Growth

60 Pages Posted: 20 Apr 2016

See all articles by Malcolm Knight

Malcolm Knight

World Bank

Norman Loayza

World Bank - Research Department

Delano Villanueva

World Bank

Multiple version iconThere are 2 versions of this paper

Date Written: February 1996

Abstract

Empirical results suggest that lower military spending in the late 1980s - plus further cuts in military spending should global peace be secured - could produce a substantial long-term peace dividend in higher capacity output.

Conventional wisdom suggests that reducing military spending may improve a country's economic growth, but empirical studies have produced ambiguous results on this point.

Extending a standard growth model, Knight, Loayza, and Villanueva exploit both cross-section and time-series dimensions of available data to get consistent estimates of the growth-retarding effects of military spending. Military spending is growth-retarding because of its adverse impact on capital formation and resource allocation.

Model simulation results suggest a substantial long-term peace dividend - in the form of higher capacity output per capita - that may result from (1) markedly lower military spending in most regions in the late 1980s and (2) future cuts in military spending if global peace is secured.

This paper - a joint product of the Macroeconomics and Growth Division, Policy Research Department, and the International Monetary Fund - is part of a larger effort to understand the link between policies and growth.

Suggested Citation

Knight, Malcolm and Loayza, Norman and Villanueva, Delano, The Peace Dividend: Military Spending Cuts and Economic Growth (February 1996). World Bank Policy Research Working Paper No. 1577. Available at SSRN: https://ssrn.com/abstract=615030

Malcolm Knight

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

Norman Loayza (Contact Author)

World Bank - Research Department ( email )

1818 H Street, N.W.
Washington, DC 20433
United States

Delano Villanueva

World Bank

1818 H Street, N.W.
Washington, DC 20433
United States

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