A Model of Military Spending and Economic Growth

Abstract

This paper investigates a model of militaryconflict between two regimes in which eachmay initiate combat in order to confiscateresources from the other. Conflict, or thepotential for same, results in wastefulmilitary spending which lowers growth foreach regime. Equilibrium military spendingis determined in a one-shot game. Analysisof the one-shot game is followed by a studyof the prospects for an equilibrium inwhich regimes lower military spending anddo not engage in combat in repeated play. In this latter case, military spending willbe decreased to a level just sufficient todeter deviations from the no-combatequilibrium. This minimum level increases,and growth decreases, with the internalpolitical instability of each regime. Moreover, an exogenous increase in thedefensive capability of each regime mayeither increase or decrease growth,depending upon the initial level ofmilitary spending and growth.