Defence spending and economic growth in the Visegrad countries

Grzegorz Waszkiewicz

doi:10.2298/pan170709029w

Abstract

This paper aims to consider the impact of military outlays on economic stance in several states in Central Europe. Therefore, we attempted to search the long- and short-range causality between defence spending and economic growth in the Visegrad countries through analysing general values (total spending approach), as well as outlay distribution in the defence sector (spending division approach). To do so, we first presented the theoretical aspect of the problem, as well as the trends in military spending of the considered states since 1993. Second, we reviewed international results of empirical examinations in this area. Then we examined causalities among variables on the grounds of VAR methodology. We did not validate the long-term causality between defence spending and economic growth in the Visegrad countries. Nonetheless, we confirmed several short-term relationships in both empirical approaches.

Highlights

According to Daněk (2015), military expenditure tends to have a positive impact on economic growth in rich economies whereas, in resource-constrained states, defence expenses crowd out more productive investments and hamper gross domestic product (GDP) growth
We strained to verify whether spending division approach provides additional information that may top up conclusions from the total spending approach
Our empirical tests employing the total spending approach confirm the lack of longterm dependency from military outlays to economic growth

Summary

Defence Outlays and Economic Growth - Insight into the Theory

National spending on defence may affect the real sphere of the economy through three channels: supply, demand, and national security The supply channel is related to the neoliberal school of thought, by which national defence is treated as a public good that generates opportunity costs It considers and measures those costs through crowding out private investments in the economy (inflation), imbalanced international financial position owing to equipment procurement, and other macroeconomic indicants (e.g. excessive public debt). Regardless that the above-mentioned theoretical approaches put pressure on distant aspects of defence spending for building national well-being, the key economic decisions pertain to the military expenditure division as financing particular components affects various engines of economic growth in the national economy. According to NATO nomenclature (North Atlantic Treaty Organization - NATO 2016), other needs pertain to costs of operation and maintenance, spending on less-significant research, as well as expenditure not classified within the three main categories Their hazy nature puts these outlays in question, as they may be employed to finance hidden priorities.

Defence Expenditure in V4

A Short Review of Previous Tests on European Countries

Data and Method

Summary of Tests - Discussion

Findings

Conclusions