THE EFFECTS OF MILITARY SPENDING ON ECONOMIC-ACTIVITY - EVIDENCE FROMSTATE PROCUREMENT SPENDING

We use state data from the period 1963-1994 to estimate the response o f employment growth to military procurement spending. The state-year p anel provides greater variation in both variables than aggregate dots, There are two main findings. First military procurement spending does explain a statistically significant degree of the variation in employ ment growth across states, even in the presence of fixed effects for t ime and state and other controls. Second, we find evidence in support of a nonlinear relationship between procurement spending and employmen t growth. In particular, large adverse state procurement shocks have p roportionately larger effects on state employment growth rates.