Impact of Defense Expenditures on Economic Growth

Abstract

Purpose: The objective of this paper is to determine the impact that the 2% of GDP allocation on Defense expenditures has on the NATO member states that have assumed this commitment. Design/Methodology/Approach: In terms of national defense industries two aspects must be taken into consideration. Employment is the first considered, as a functioning defense industry, be it through partnerships, off-set or just internal production would decrease unemployment and have a positive impact on economic growth. The second argument is that of imports and exports of armament that have increases since countries have been required not only to jump to 2% in terms of defense expenditures Findings: The empirical results show that before for member states correlation exists and positive effects on imports and exports can be observed, while for non-NATO countries that are in different partnerships in terms of security and defense with the United States, there seem to be a mixture of effects on different categories of economic activities. Practical Implications: It is the aim of this paper to show whether the 2% of the GDP allocation should be continued to all NATO member states that have yet to commit to this effort. So far findings indicate, that while results are not always positive, key advantages can be observed by applying this strategy, rather than not going forward with the commitment. Originality/value: Investing in defense and security is an innovative approach now that the EU on its own is considering requesting special allocation on the Common Defense and Security Policy for member states. It is therefore worth analyzing if investments already requested by NATO are feasible and whether duplicating efforts might or might not appear when both NATO and EU ask member states to contribute more to defense expenditures.