Demilitarization and economic growth: Empirical evidence in support of a peace dividend

Abstract

This paper analyzes the implications of demilitarization on economic growth. I create a new data set of military transitions since 1960 and measure the effect of demilitarization in countries that reduced their military capabilities and subsided aggressive or violent behavior. Semiparametric difference-in-difference estimates predict that on average, demilitarization is associated with a 1% higher annual GDP per capita than if the country had remained militarized. Dynamic analysis shows that on average, GDP per capita is 15%–20% higher 20 years after transition. These findings provide empirical evidence in support of a Peace Dividend.