DEFENCE SPENDING AND ECONOMIC GROWTH IN THE EU15

Abstract

Over the last 30 years, there has been an impressive amount of empirical work on the defence–growth nexus, using different methodologies, models and econometric techniques and focusing on individual case studies, cross-country studies or panel data studies. Despite the number and the variety of studies, the evidence on the defence–growth relationship is still far from conclusive. Rather surprisingly, very limited work has been published in the relevant literature for the European Union despite the continuous discussions for a Common European Defence Policy that would require an assessment of the economic effects of defence in this region. To fill in the gap in the literature, this paper employs an augmented Solow–Swan model and estimates it both with panel and time series methods to provide empirical evidence on the economic effects of defence spending in the EU15 over the period 1961–2007. Overall, evidence derived from both panel and time series methods is consistent and suggests that military burden does not promote economic growth in this region.