Abstract
An augmented two-sector growth model is derived to analyse the effects of the military burden and government expenditure on the growth of GNP in selected Middle Eastern countries. The empirical results reveal that the military burden and related activities had a negative effect on the growth of GNP in the period 1974-85. The size of the government sector, oil prices and capital formation, in turn, had positive effects on economic growth. The difference in marginal productivity in different sectors is relatively small and the positive externality effect of the government on private consumption is fairly large. Country-specific factors had a minor effect on the result.
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