A model of military spending and economic growth

This paper investigates a model of military conflict between two regimes in which each may initiate combat in order to confiscate resources from the o ther. Conflict, or the potential for same, results in wasteful military spe nding which lowers growth for each regime. Equilibrium military spending is determined in a one-shot game. Analysis of the one-shot game is followed b y a study of the prospects for an equilibrium in which regimes lower milita ry spending and do not engage in combat in repeated play. In this latter ca se, military spending will be decreased to a level just sufficient to deter deviations from the no-combat equilibrium. This minimum level increases, a nd growth decreases, with the internal political instability of each regime . Moreover, an exogenous increase in the defensive capability of each regim e may either increase or decrease growth, depending upon the initial level of military spending and growth.