To investigate the direct and indirect effects of defense spending on economic growth, the authors develop a multilink (via investment, employment, and exports) defense-growth model and test it with U.S. data for the time period from 1951 to 2000. By doing so, they advance previous scholarship on the indirect effects of the defense-growth trade-off through both a theoretical and empirical investigation of multiple indirect channels. Using a nonlinear four-sector production function model that incorporates labor, capital, technology, and exports, they test the direct and indirect impacts of defense spending on growth. Defense spending has a negative, indirect effect on economic growth via investment and export while the direct impact on growth seems to be rather small. Nonmilitary government spending has economic effects on growth that are similar to those associated with military spending.
Adams, F. Gerard, and Gene Huang. 1992. Defense expenditure reductions and the US economy: Sectorally disaggregated macro model simulations. In The macroeconomic dimensions of arms reduction, edited by Gerard Adams. Boulder, CO: Westview.
2.
Adams, Gordon, and David Gold. 1987. Defense spending and the economy: Does the defense dollar make a difference?Washington, DC: Defense Budget Project.
3.
Alesina, Alberto, and Howard Rosenthal. 1995. Partisan politics, divided government, and the economy. Cambridge, MA: Cambridge University Press.
4.
Alexander, W.Robert J.1990. The impact of defence spending on economic growth: A multi-sectoral approach to defence spending and economic growth with evidence from developed economies. Defence Economics2:39-55.
5.
Anderson, John E.2003. Public finance. New York: Houghton Mifflin.
6.
Atesoglu, H. Sonmez. 2002. Defense spending promotes aggregate output in the United States: Evidence from cointegration analysis. Defense and Peace Economics13:55-60.
7.
Atesoglu, H. Sonmez, and J. Michael Mueller. 1990. Defence spending and economic growth. Defence Economics2:19-27.
8.
Bahmani-Oskooee, Mohsen. 1986. Determinants of international trade flows. Journal of Development Economics20:107-123.
9.
Bahmani-Oskooee, Mohsen, and Farhang Niroomand. 1998. Long-run price elasticities and the Marshall-Lerner condition revisited. Economic Letters61:101-109.
10.
Becker, Gary. 1991. Defense spending isn't stunting the U.S. economy. Business Week, February 25, 22-22.
11.
Biswas, Basudeb, and Rati Ram. 1986. Military expenditures and economic growth in less developed countries: An augmented model and further evidence. Economic Development and Cultural Change34:361-372.
12.
Cappelen, Adne, Nils Petter Gleditsch, and Olav Bjerkholt. 1984. Military spending and economic growth in the OECD countries. Journal of Peace Research21:361-373.
13.
Chalmers, Malcom. 1985. Paying for defense: Military spending and British economic decline. London: Pluto.
14.
Chan, Steve. 1987. Military expenditures and economic performance. In World military expenditures and arms transfers, 1986, edited by the U.S. Arms Control and Disarmament Agency, 29-38. Washington, DC: Government Printing Office.
15.
Chan, Steve. 1995. Grasping the peace dividend: Some propositions on the conversion of swords into plowshares. Mershon International Studies Review39:53-95.
16.
Clark, Peter. 1979. Investment in the 1970s: Theory, performance, and prediction. Brookings Papers on Economic Activity1:73-113.
17.
Dao, James. 2002. Bush sees big rise in military budget for next 5 years. New York Times, February 2.
18.
Deger, Saadet. 1986. Military expenditures in Third World countries: The economic effects. London: Routledge Kegan Paul.
19.
DeGrasse, Robert W., Jr.1983. Military expansion, economic decline: The impact of military spending on U.S. economic performance. Armonk, NY: M. E. Sharpe.
20.
Denison, Edward F.1985. Trends in American economic growth, 1929-1982. Washington, DC: Brookings Institution.
21.
DeRouen, Karl, Jr., and Uk Heo. 2000. Defense contracting and domestic politics. Political Research Quarterly53:753-769.
22.
DeRouen, Karl, Jr., and Uk Heo. 2001. Modernisation and the military in Latin America. British Journal of Political Science31:475-496.
23.
Dumas, Lloyd J.1986. The overburdened economy. Berkeley: University of California Press.
24.
Dunne, Paul, and Ron Smith. 1990. Military expenditure and unemployment in the OECD. Defence Economics1:57-73.
25.
Durbin, J.1960. Estimation of parameters in time-series regression models. Journal of the Royal Statistical Society22:139-153.
26.
Dye, Thomas R.2002. Understanding public policy. 10th ed.New York: Prentice Hall.
27.
Feder, Gershon. 1983. On exports and economic growth. Journal of Development Economics12:59-73.
28.
Gansler, Jacques S.1980. The defense industry. Cambridge, MA: MIT Press.
29.
Gerace, Michael P.2002. US military expenditure and economic growth: Some evidence from spectral methods. Defence and Peace Economics13:1-11.
30.
Geweke, John, and Richard Meese. 1981. Estimating regression models of finite but unknown order. International Economic Review22:55-70.
31.
Gold, David. 1990. The impact of defense spending on investment, productivity and economic growth. Washington, DC: Defense Budget Project.
32.
Goldstein, Joshua. 1988. Long cycles: Prosperity and war in the modern age. New Haven, CT: Yale University Press.
33.
Granger, C. W. J., and Paul Newbold. 1974. Spurious regressions in econometrics. Journal of Econometrics2:111-120.
Henderson, Errol Anthony. 1998. Military spending and poverty. Journal of Politics60:503-520.
36.
Heo, Uk. 1998. Modeling the defense-growth relationship around the globe. Journal of Conflict Resolution42:637-657.
37.
Heo, Uk. 1999. Defense spending and economic growth in South Korea: The indirect link. Journal of Peace Research36:699-708.
38.
Heo, Uk. 2000. The defense-growth nexus in the United States revisited. American Politics Quarterly28:110-127.
39.
Heo, Uk, and Karl DeRouen Jr.1998. Military expenditures, technological change, and economic growth in the East Asian NICs. Journal of Politics60:830-846.
40.
Hooker, Mark A.1996. Howdo changes in military spending affect the economy? Evidence from state-level data. New England Economic Review3:3-15.
41.
Hooker, Mark A., and Michael M. Knetter. 1994. Unemployment effects of military spending: Evidence from a panel of states. Working Paper No. 4889, National Bureau of Economic Research, Cambridge, MA.
42.
Houthakker, H. S., and Stephen Magee. 1969. Income and price elasticities in world trade. Review of Economics and Statistics21:111-125.
43.
Huisken, Ron. 1982. Armaments and development. In Militarization and arms production, edited by Helena Tuomi and Raimo Vayrynrn. London: Croom Helm.
44.
Judge, George, R. Carter Hill, W. E. Griffiths, Helmut Lukepohl, and Tsoung-Chou Lee. 1985. The theory and practice of econometrics. 2nd ed.New York: John Wiley.
45.
Kariya, Takeaki. 1981. Tests for the independence between two seemingly unrelated regression equations. Annals of Statistics9:381-390.
46.
Kennedy, Paul. 1987. The rise and fall of the great powers. New York: St. Martin's.
47.
Kinsella, David. 1990. Defense spending and economic performance in the United States. Defence Economics1:295-309.
48.
Mehay, Stephen L., and Loren M. Solnick. 1990. Defense spending and state economic growth. Journal of Regional Science30:477-487.
49.
Melman, Seymour. 1983. Profits without production. New York: Knopf.
50.
Mintz, Alex. 1988. The politics of resource allocation in the U.S. Department of Defense: International crises and domestic constraints. Boulder, CO: Westview.
51.
Mintz, Alex, and Chi Huang. 1990. Defense expenditures, economic growth and the peace dividend. American Political Science Review84 (4): 1283-1293.
52.
Mintz, Alex, and Chi Huang. 1991. Guns versus butter: The indirect link. American Journal of Political Science35:738-757.
53.
Mosley, Hugh G.1985. The arms race: Economic and social consequences. Lexington, MA: Lexington Books.
54.
Mueller, Michael, and H. Sonmez Atesoglu. 1993. Defense spending, technological change, and economic growth in the United States. Defence Economics4:259-269.
55.
Nincic, Miroslav, and Thomas Cusack. 1979. The political economy of US military spending. Journal of Peace Research16:101-114.
56.
Pindyck, Robert S., and Daniel L. Rubinfeld. 1998. Econometric models and economic forecasts. 4th ed.Boston: McGraw-Hill.
57.
Ram, Rati. 1986. Government size and economic growth: A new framework and some evidence from crosssection and time-series data. American Economic Review76:191-203.
58.
Ram, Rati. 1993. Conceptual linkages between defense spending and economic growth and development: A selective view. In Defense spending and economic growth, edited by James E. Payne and Anandi P. Sahu. Boulder, CO: Westview.
59.
Rasler, Karen, and William Thompson. 1988. Defense burdens, capital formation, and economic growth: The systemic leader case. Journal of Conflict Resolution32:61-86.
60.
Rothschild, Kurt W.1973. Military expenditure, exports and growth. Kyklos26:804-813.
61.
Royer, James. 1986. The long-term employment impact of disarmament policies: Some findings from econometric model. International Economic Review125:279-303.
62.
Russett, Bruce. 1969. Who pays for defense?American Political Science Review63:412-426.
63.
Sandler, Todd, and Keith Hartley. 1995. The economics of defense. Cambridge, UK: Cambridge University Press.
64.
Schwarz, Gideon. 1978. Estimating the dimension of a model. Annals of Statistics6:461-464.
65.
Scott, J. P.2001. Does UK defense spending crowd-out UK private sector investment?Defense and Peace Economics12:325-336.
66.
Sivard, R. L.1983. World military and social expenditure. Washington, DC: World Priorities.
67.
Smith, Ron P.1980. Military expenditure and investment in OECD countries, 1954-1973. Journal of Comparative Economics4:19-32.
68.
Smith, Ron, and George Georgiou. 1983. Assessing the effect of military expenditure on OECD economies: A survey. Arms Control4:3-15.
69.
Solow, Robert M.1957. A technical change and the aggregate production function. Review of Economics and Statistics39:312-320.
70.
Solow, Robert M.1970. Growth theory: An exposition. New York: Oxford University Press.
71.
Stephen, Nickell. 1990. Unemployment: A survey. Economic Journal100:391-439.
72.
Ward, Michael, and David Davis. 1992. Sizing up the peace dividend: Economic growth and military spending in the United States, 1948-1996. American Political Science Review86:748-755.
73.
Ward, Michael, David Davis, and Corey Lofdahl. 1995. Acentury of tradeoffs: Defense and growth in Japan and the United States. International Studies Quarterly39:27-50.
74.
Weinberger, Casper. 1983. Hearings on Department of Defense appropriations for FY 1984. Part 1. Washington, DC: Department of Defense.
75.
White, Kenneth J.1992. The Durbin-Watson test for autocorrelation in nonlinear models. Review of Economics and Statistics74 (3): 370-373.
76.
Zellner, Arnold. 1962. An efficient method of estimating seemingly unrelated regression and tests of aggregation bias. Journal of the American Statistical Association57:358-368.
Supplementary Material
Please find the following supplemental material available below.
For Open Access articles published under a Creative Commons License, all supplemental material carries the same license as the article it is associated with.
For non-Open Access articles published, all supplemental material carries a non-exclusive license, and permission requests for re-use of supplemental material or any part of supplemental material shall be sent directly to the copyright owner as specified in the copyright notice associated with the article.
