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Military Expenditure, Economic Growthand HeterogeneityJ. Paul Dunnea & Nan Tianba School of Economics and SALDRU, University of Cape Town, CapeTown, South Africab School of Economics and DPRU, University of Cape Town, CapeTown, South AfricaPublished online: 09 Dec 2013.

To cite this article: J. Paul Dunne & Nan Tian (2015) Military Expenditure, Economic Growth andHeterogeneity, Defence and Peace Economics, 26:1, 15-31, DOI: 10.1080/10242694.2013.848575

To link to this article: http://dx.doi.org/10.1080/10242694.2013.848575

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MILITARY EXPENDITURE, ECONOMIC GROWTH ANDHETEROGENEITY

J. PAUL DUNNEa* AND NAN TIANb

aSchool of Economics and SALDRU, University of Cape Town, Cape Town, South Africa; bSchool ofEconomics and DPRU, University of Cape Town, Cape Town, South Africa

(Received 16 December 2012; in nal form 12 April 2013)

This paper examines the impact of military expenditure on economic growth on a large balanced panel, using anexogenous growth model and dynamic panel data methods for 106 countries over the period 19882010. A majorfocus of the paper is to consider the possibility group heterogeneity and non-linearity. Having estimated the modelfor all of the countries in the panel and nding that military burden has a negative effect on growth in the shortand long run, the panel is broken down into various groupings based upon a range of potentially relevant factors,and the robustness of the results is evaluated. The factors considered are different levels of income, conictexperience, natural resources abundance, openness and aid. The estimates for the different groups are remarkablyconsistent with those for the whole panel, providing strong support for the argument that military spending hasadverse effects on growth. There are, however, some intriguing results that suggest that for certain types ofcountries military spending has no signicant effect on growth.

Keywords: Military expenditure; Economic growth; Conict; Development

JEL Codes: O11, H56

INTRODUCTION

There is an impressively large and growing literature on the effects of military spending oneconomic growth that reects a continuing lack of consensus. As more data becomeavailable that do not reect the particular geopolitical environment of the cold war, there ismore information in the data, which should help researchers in identifying any relation witheconomic factors. Certainly, the end of the cold war saw sizeable reductions in militaryexpenditure internationally and in recent years the declining trend has bottomed out andmilitary expenditure is once again on the increase, across the medium- and high-incomegroups. The lowest income group continues to experience declines in military spending andmilitary spending as a share of gross domestic product (GDP) remains the lowest for thelow-income countries relative to the other income groups (SIPRI, 2012). World military

*Corresponding author. School of Economics and SALDRU, University of Cape Town. E-mail: John.Dunne@uct.ac.zaAn earlier version of this paper was presented at the 16th Annual International Conference on Economics andSecurity, American University of Cairo, Egypt, 2122 June 2012 and we are grateful to the participants forcomments.

2013 Taylor & Francis

Defence and Peace Economics, 2015Vol. 26, No. 1, 1531, http://dx.doi.org/10.1080/10242694.2013.848575

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