| Nowadays,the confrontation between countries is not only about the contest of military power,but also about economic wealth.Because starting a war needs the support of funds,which is determined by a country’s economic development,more and more countries integrate the development of their economy and national defense.In 1991,the Soviet Union was defeated in the Cold War.Almost invariably,the cause of failure can be traced to the imbalanced development of national defense and economic construction.Since then,to avoid following the same old disastrous path,all countries around the world have started to pay great attention to the coordinated development of national defense and the economy.Due to the limited resources,there is inevitably a trade-off between them.Therefore,to achieve the optimal allocation of national resources and realize the advancement of national defense and economic development,numerous countries have undertaken various explorations.For example,the United States has implemented the strategy of "military-civilian integration",Russia has adopted the strategy of "military first before civilian",Israel has enacted the strategy of "military with the people" and Japan has applied the strategy of "hiding the army with the people".By executing an efficient national defense plan,all countries seek to achieve the unification of strong economic strength and national defense might.China is no exception.Since the founding of the PRC,China has experienced the "Third-line Construction" period focusing on the military sector,the "Reform and Opening Up"period focusing on the civilian sector,and after 2007,China has put forward the military-civilian fusion strategy(MCFS)to focus on the progress of the militarycivilian integration sector.Moreover,President Xi Jinping upgraded the MCFS into a national strategy to build the national defense industry into an all-factor,multi-field,and high-efficiency deep military-civilian integration pattern.The mutually exclusive and interdependent relationship between national defense and economic development has prompted researchers from all over the world to focus their efforts on the subject.By reviewing the previous literature,we find that numerous studies investigate the relationship between defense spending and economic growth from the macro-level perspective.Although they expose the economic impact of defense spending to some extent,they do not go far enough in exploring the underlying influence mechanism.In fact,the micro-economic impact of defense spending could disclose a lot about the macro-economic impact of defense spending.As a result,we use the China Industrial Enterprise Database to investigate the influence of defense spending on several economic sectors at the micro-level.China has relied heavily on the military sector to produce military products,such as national laboratories,international scientific institutions,and military-industrial groups,so on.While nonmilitary sectors are not closely attributed to military building,military expenditure may even hinder the development of non-military sectors.Based on this,it is necessary for us to conduct a detailed sector analysis and comparison of the economic impact of China’s defense spending.By studying the economic effect of defense expenditure on each sector,we can understand which sector benefits from the defense expenditure and which sector bears the burden of defense expenditure.To clarify the process by which defense spending affects economic growth,we divide the Chinese economy into three sectors based on the extent of their engagement with the army—the military sector,the military-civilian integration sector,and the civilian sector.Then,we comprehensively analyze the sector-specific effect of defense expenditure following the framework of "defense expenditure—market shock—sector profit".From the very beginning,we analyze the supply shock caused by defense expenditure on each sector,including the impact of defense expenditure on each sector’s labor productivity,technological innovation efficiency,and the level of total supply.Next,we analyze the demand shock caused by defense expenditure on each sector,including the impact of defense expenditure on government purchases,private investment,private consumption,and the level of total demand.Then,based on this,we analyze the impact of defense expenditure on each sector’s profitability.Moreover,the effectiveness of the MCFS is assessed by employing the Difference in Difference model(DID).Finally,we put forward some research conclusions and policy suggestions based on the research.The main contents and research conclusions of this paper are as follows:First,in terms of sector classification,we use the Feder-Ram model and J.P.Dunne’s classification method for reference,and we divide the economic system into the military sector,the military-civilian integration sector,and the civilian sector according to the extent of their engagement with the army.Specifically,the military sector refers to the firms that produce pure military-used products,such as guns,ammunition,missiles,and military vehicles.The military-civilian integration sector indicates the firms that provide goods or services necessary to produce weapons and equipment,such as nuclear energy,the space industry,military and commercial aircraft,ships,raw materials,semiconductors,and so on.The civilian sector indicates the firms that produce pure civilian-used products.The study reveals the deep influence mechanism of defense expenditure on economic development by studying the sectorspecific effect of defense expenditure.Second,in studying the supply shock caused by China’s defense expenditure on each sector,we employ the labor flow model and the R&D investment model.Following the framework of“defense expenditure—labor flow—labor productivity"and“defense expenditure—R&D investment—technology innovation efficiency",we analyze the influence path and the different effects of defense expenditure on each sector’s labor productivity,technology innovation efficiency,and total supply level.Meanwhile,we use the panel fixed effect model and the mixed panel OLS model to verify the supply shock of defense expenditure on each sector,and the following conclusions are found:(1)Defense expenditure has significantly increased the labor productivity of the military sector.However,it has also significantly suppressed the labor productivity of the military-civilian integration sector and the civilian sector.Hence,when defense expenditure inspires the high-tech labor flow into the military sector,causing a flow-out of high-tech labor from the military-civilian integration sector and the civilian sector,and finally inhibits the labor productivity of the militarycivilian integration sector and the civilian sector,it means that China lacks the dualused human capital;(2)Defense spending has a positive impact on the technological progress of all three sectors,but its influence is gradually waning in the military,military-civilian integration,and civilian sectors.It indicates that although defense expenditure improves the R&D investment and hence the technology innovation efficiency of these sectors,the positive spillover effect is decreasing from the military to the civilian channel,indicating the technology spillover channel is unsmooth;(3)Similar to the effect of defense expenditure on technological progress,it also plays a positive role in each sector’s total supply level.After adding the quadratic term of defense expenditure to the empirical model,we find that defense expenditure has a Ushaped relationship with the supply level of the military-civlian integration sector and the civilian sector,and the turning points are 7.99 and 6.12,respectively,which implies that with the growth of China’s defense expenditure,the civilian sector’s supply level will experience an increase earlier than the military-civlian integration sector.It means that defense expenditure has a stronger labor productivity crowed-out effect on the military-civilian integration sector.However,defense spending will ultimately improve the supply level of each sector,and thus defense spending promotes supply-side reform in the industry.Third,in studying the demand shock caused by China’s defense expenditure on each sector,we first investigate the financial sources of China’s defense expenditure,and then we employ the budget balance model,IS-LM model,and consumption structure model to analyze how defense expenditure affects China’s government purchase,private investment,private consumption,and total market demand level.Meanwhile,we employ the vector autoregressive model,the fixed effect model,and the mixed panel OLS model to verify the influence between them.The empirical results are as follows:(1)Defense expenditure significantly crowed out China’s education expenditure,while the trade-off between defense expenditure and health expenditure is not found.It indicates that there may be a trade-off between defense expenditure and education expenditure in the government budget,which proves that China’s defense expenditure does crowed-out the non-military sector’s labor productivity by reducing the educational resources of social capital;(2)The relationship between defense expenditure and the growth rate of private investment is inverted;that is,the relationship between China’s defense expenditure and private investment growth has experienced both positive and negative.At present,with the increase of national defense expenditure,the growth rate of private investment has gradually decreased.This means that the increase in China’s defense expenditure leads to lower private investment levels in the military-civilian integration and civilian sectors;(3)There is also a negative correlation between defense expenditure and the growth rate of private consumption,which is mainly caused by the consumption nature of defense expenditure.On the one hand,consumption nature reduces the multiplier effect of defense expenditure;on the other hand,China’s defense expenditure increases the per capita defense burden and finally reduces private consumption to some extent.(4)In the military sector,national defense spending is linearly positive in relation to total military demand,U-type positive in relation to the military-civilian integration sector,and negatively related to the civilian sector.Defense expenditure has significantly increased the market demand for the military sector.At the same time,although defense expenditure has a crowed-out effect on private investment and private consumption,it ultimately improves the market demand for the military-civilian integration sector.This is due to the growing direct procurement of the Chinese State Administration of Science,Technology,and Industry for National Defense(SASTIND),which enhances the demand level of the military-civilian integration sector.Meanwhile,enterprises in the military-civilian integration sector may also occupy a part of the civilian market and thus expand the market share.The negative effect of defense expenditure on the civilian sector implies that the crowed-out effect of defense expenditure on private investment and private consumption is mainly taking place in the civilian sector;that is,the negative demand shock of defense expenditure is more obvious in the civilian sector.Fourth,in studying the economic effect of defense expenditure on each sector,we construct the analysis framework of“defense expenditure—market shock—sector’s profit".Based on analyzing the supply and demand shocks caused by defense expenditure on each sector,we employ the Local Equilibrium Model to examine the economic effect of defense expenditure on each sector.The study finds that China’s defense expenditure helps to improve the profit of each sector,but the military sector and the military-civilian integration sector are more sensitive to it,and the positive spillover effect of defense expenditure on profitability from strong to weak is the military sector,the military-civilian integration sector,and the civilian sector.Fifth,in terms of studying the effectiveness of the MCFS,we employ the DID model and divide the total sample into two groups-experimental group and control group.Then we analyze whether the economic effect of defense expenditure on each sector has changed before and after the implementation of the MCFS.The study found that after the implementation of the MCFS,the economic effects of defense expenditure on the military-civilian integration sector and the civilian sector have changed,but the effect on the military sector has not.Specifically,after the implementation of the MCFS,the positive effect of defense expenditure on the military-civilian integration sector is strengthened,while the positive effect of defense expenditure on the civilian sector is weakened.It can be concluded that the implementation of the MCFS has indeed improved the profitability of relevant industries,even though it has sacrificed some civilian firms’ profit. |
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