Guns versus butter - A multisectoral approach to military expenditure and growth with evidence from Greece, 1960-1993

Current conventional wisdom suggests that military expenditure may affect e conomic growth through the creation of additional aggregate demand, the who le host of spin-offs that result from military spending, the possible reduc tion of investment, and the displacement of talent from the most dynamic se ctors of civilian production. Earlier empirical studies on the subject have reported conflicting research findings, attributed to the use of cross-sec tional analysis, sample variations and differences in specificational choic es, time periods examined, and databases used. These considerations point t o the need for case-specific studies using time-series data for individual countries. This article investigates the growth-defense relationship in the case of Greece over the period from 1960 to 1993, Results show that the an nual output growth rate in Greece is negatively affected by the size of the defense sector, as measured by real military expenditure. They indicate th at the post-1974 threat of war facing Greece as well as the oil-price shock s of the 1970s have retarded economic growth in this country.