One of the most important questions stemming from the end of the cold war is how reductions in defense spending will affect economic performance. This question has significant policy implications for countries facing public demands for defense cutbacks and countries still maintaining high levels of military spending for security. However, previous studies on the defense-growth relationship have reported mixed findings. Thus, this study investigates how the changes in defense burden will affect economic growth by testing the economic effects of defense spending on growth in 80 countries using a nonlinear defense-growth model that includes technological progress. The results reveal that two thirds of the countries under investigation may expect a “peace dividend” due to the negative relationship between defense spending and economic growth.
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