The Peace Dividend: Military Spending Cuts and Economic Growth

40 Pages Posted: 15 Feb 2006

See all articles by Malcolm Knight

Malcolm Knight

World Bank

Norman Loayza

World Bank - Research Department

Multiple version iconThere are 2 versions of this paper

Date Written: May 1995

Abstract

Although conventional wisdom suggests that reducing military spending may improve a country`s economic growth performance, empirical studies have produced ambiguous results. This paper extends a standard growth model and estimates it using techniques that exploit both cross-section and time-series dimensions of available data to obtain consistent estimates of the growth-retarding effects of military spending via its adverse impact on capital formation and resource allocation. Model simulations suggest that a substantial long-run "Peace Dividend"--in the form of higher capacity output--may result from: (i) markedly lower military expenditure levels achieved in most regions during the late 1980s; and (ii) further military spending cuts that would be possible in the future if a global peace could be secured.

JEL Classification: 041, 047

Suggested Citation

Knight, Malcolm and Loayza, Norman, The Peace Dividend: Military Spending Cuts and Economic Growth (May 1995). IMF Working Paper, Vol. , pp. 1-40, 1995. Available at SSRN: https://ssrn.com/abstract=883201

Malcolm Knight (Contact Author)

World Bank

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

Norman Loayza

World Bank - Research Department ( email )

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

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