DEFENSE EXPENDITURES, ECONOMIC-GROWTH, AND THE PEACE-DIVIDEND - A LONGITUDINAL ANALYSIS OF 103 COUNTRIES

Despite the proliferation of studies on the impact of military spendin g on economic growth, it is still not known whether defense spending h inders or promotes growth. Most analysts attribute the lack of consist ent/robust findings to three problems: the lack of a sound theory of d efense-growth trade-offs, an inadequate research design, and a failure to account for the externality effects that defense spending might ha ve on other parts of the economy. In this study, the authors try to re medy these problems by (1) relying on a model of the defense-growth tr ade-off that is grounded in the neoclassic theory of growth, (2) estim ating this model using time-series data on 103 countries, and (3) expl icitly accounting for the externality effects of defense spending by t he use of a multisectorial model. The results show that, regardless of the specification of the models, and contrary to most cross-national studies, military expenditures have a significant positive effect on g rowth in only about 10% of the cases.