Budgetary Consequences of Defense Expenditures in Pakistan: Short-Run Impacts and Long-Run Adjustments

Abstract

In the last twenty years, there has been a growing interest in quantifying the `guns versus butter' tradeoff facing developing countries. This article examines Pakistan's military expenditures between 1973 and 1986 and estimates both a short-run impact model and long-run adjustment model to measure how changes in the defense burden, the deficit, and government debt have affected budget allocations to economic services programs and administrative/social programs. In addition, we investigate whether defense budgets have been increased or maintained either at the expense of economic and social programs in general or merely confined to one or two specific programs. Military expenditure patterns are analyzed to see whether or not they were responsible for across-the-board cuts in long-term infrastructure programs. Our analysis indicates that the deficit, the debt service, and the military burden are often interrelated in such a complex manner that the impact of any specific program is difficult to predict. in the short run, most infrastructure programs increased as the military burden declined. The opposite was generally true for social programs such as social security, welfare, and housing. Changes in the defense budget appear to have only a transitory effect on the share of government expenditures allocated toward infrastructure. The long-run model suggests that social programs have just as high a priority as economic services. When the military burden increases, the government is willing to take some resources from infrastructure programs and lets the deficit grow to finance social programs. Our results also suggest a long run pattern of adjustment in social programs but not infrastructure programs - a counter-intuitive result given Pakistan's severe infrastructure constraints.