Defense Expenditures and Economic Growth in Developing Countries

Abstract

Abstract : Studies of the effect that defense spending has had on economic growth in less-developed countries have produced rather mixed results. We contend that this is because these studies have failed to take into account the relative financial constraints faced by individual countries. In an extension of the seminal work by Emile Benoit on defense spending and its effect on economic growth, I we hypothesize that relatively poor countries tend to cut back high-growth development expenditures in favor of maintaining defense programs, while relatively rich countries are much less likely to abandon development expenditures given a constant level of defense preparedness. Thus, we should expect a negative relationship between defense and growth in the poorer countries, but a positive relationship in the richer countries. In this article, we examine the relevant literature, and develop a model of defense and economic growth that explicitly incorporates resource constraints. The results of the cluster analysis that was used to group the sample of countries into a richer and poorer group are presented. Finally, the results of the within-group regressions are presented.