Defense Spending and Export in South Korea: A Causal Analysis

Abstract

Abstract: The economic effects of defense spending on growth in South Korea is not clear cut. Previous studies have reported mixed findings. Since export has been the main engine of South Korean economic development, I have systematically examined the indirect relationship between defense spending and economic growth via export, employing a Box-Jenkins ARIMA (Autoregressive Integrated Moving Average) causal model. The results of the analysis reveal that an increase in defense expenditures has an immediate dampening effect on export. Thus, reductions in defense spending may lead to an increase in export, which in turn stimulates economic growth. In other words, South Korea may expect some “peace dividend.”