Military Spending and Economic Growth: A Comment on Cappelen,Gleditsch and Bjerkholt

Abstract

There is a sizeable theoretical and empirical literature on the relation between defense spending and important macro-economic variables, but a lack of specific models. In an interesting study published in this journal in 1984, Cappelen, Gleditsch & Bjerkholt (CGB) developed a theoretical model consisting of three equations, and tested it empirically for seventeen OECD countries in the period 1960-81. Their study suggests a negative relationship between economic growth and defense spending in OECD countries. This study focuses on a representation of this relationship for a comparable CGB model with the help of a homogeneous group of four neutral European nations. Estimation of structural parameters of the econometric model was conducted on the basis of time-series for the period 1960-87. Contrary to the results and conclusions by Cappelen et al., no similar trend could be established for the countries in the sample. Thus we conclude that the influences of defense spending on growth are not always significant and empirically evident in the estimation of econometric models which are reduced to the seemingly main influences within the frame of longitudinal data. It may be that the data basis for such investigations is also unsatisfactory, but no better basis is available.