Military expenditure and economic growth in the European Union: Evidence from SIPRI’s extended dataset

Julien Malizard

doi:10.15355/epsj.11.2.38

Abstract

The aim of this article is to shed light on the fiscal consequences of economic growth in the EU15 countries by disentangling military and civilian government expenditure. Given the newly available extended dataset on military expenditure provided by the Stockholm International Peace Research Institute (SIPRI), a comparison can be made to older SIPRI data. Using growth theory and panel data analysis, the results show that public spending is growth detrimental and military expenditure is less harmful than nonmilitary, civilian spending. The new data offer a richer pattern of results.

Highlights

The economic crisis that began in the late 2000s has spurred economists toevaluate the macroeconomic consequences of public sector spending
Recent trends in the EU15 show that following the fiscal consolidation policy, military expenditure fell by an average of 12.5 percent between 2010 and 2014, especially so in countries most severely affected by the economic crisis, i.e., Greece, Italy, Portugal, and Spain. (Among the EU15, only Sweden showed a rise in military expenditure for the 2010–2014 period.) At the same time, the EU15 are facing increased threats: For instance, the attitude of Russia appears somewhat aggressive and generates uncertainties regarding Crimea, terrorists’ attacks have taken place in Paris and elsewhere in Europe, and a number of European countries are involved in the international coalition against ISIS
Alternative estimators (Mean Group or Dynamic Fixed Effect) are not presented here because Hausman tests show the superiority of the Pooled Mean Group (PMG) estimator

Summary

Introduction

The economic crisis that began in the late 2000s has spurred economists to (re)evaluate the macroeconomic consequences of public sector spending. The nature of many of these kinds of threats is more diffuse than before so that security issues raise challenges not yet fully taken into account by European defense strategy.. The nature of many of these kinds of threats is more diffuse than before so that security issues raise challenges not yet fully taken into account by European defense strategy.2 To deal with these events, military budgets are being increased. The newly elected Finnish government imposed public spending cuts except for the military Some research papers dealing with the EU15 suggest that military expenditure has an adverse influence on economic growth but generalizing across a group of countries that are fairly heterogeneous in their defense and economy policies may give one pause.. Empirical difficulties arise due to implied homogeneity which can lead to flaws in estimation

Objectives

Results

Conclusion