Dynamic Model For The Relationship Between Military Spending And Economic Growth

The relationship between competitive arms accumulation and economic growth has been a major topic of dynamic economics and international relations in the political science. Earlier mathematical models of arms race presented by Richardson(1960) and Saaty(1968) have been extended and refined in numerous contributions in the 1970s-1990s,and notable ones are Brito(1972),Intriligator(1975), Simaan and Cruz(1975),Intriligator and Brito(1976),Deger and sen(1984),van der Ploeg and deZeeuw(1990), and Chang et al.(1996).At the same time,economic consequences of military spending and arms accumulation have also received enormous attention in both empirical studies and policy discussions. For example,Benoit(1973,1978) and Deger and Sen(l983) have shown a positive effect of defense spending on economic growth,whereas Deger(1986) has found that defense spending definitely reduces national saving rates.The usual arguments for a positive effect of military spending on growth have been often put as follows:Rising military spending leads to increased security,utilization of excess capacity (see Deger and Sen(1992) or Deger and Sen(1995)for a comprehensive survey).On the other hand,the direct resource allocation effect transfers potential investment resources to the military,reducing investment and growth.In a more sophisticated regression analysis,Landau (1993) has demonstrated that, for a sample of 71 countries over the time period 1969-1989, there exists a non-linear (quadratic) relationship between military spending and growth: At low levels of military expenditure, there will be a positive impact due to increased security and eJciency, while at higher levels of military expenditure, the negative resource-use elect will lead to lower growth.