Defense Spending and Economic Growth in Subsaharan Africa: An Econometric Investigation

Abstract

A four equation - growth rate, defense burden, skilled labor rate, and investment rate - simultaneous model is used to investigate whether increased defense burden increases or decreases economic growth and the channels through which defense burden influences economic growth in Less Developed Countries (LDCs). The model is estimated using cross national data for 39 Subsaharan African countries during the 1973 to 1983 period from ACDA data sources. The estimation procedure is three stage least squares. Defense burden affects economic growth directly through increased demand, technological spin-off, and modernization of attitudes and indirectly through increased supply of skilled labor and decreased investment. The positive effects defense burden has on growth are swamped by the negative effect it has on growth rate through decreased investment. We calculate a defense burden/growth rate multiplier of -0.12. When we re-estimate the model using SIPRI data sources, the qualitative results remain unchanged. The implication of this result is that African countries cannot use increased defense spending to stimulate economic growth because there is a trade-off between high defense burden and economic growth.