Military expenditures and economic growth in South Korea and Taiwan

Abstract

It is generally believed that high levels of military expenditures hamper economic growth because it crowds out investment. Contrary to this popular belief, South Korea and Taiwan have achieved a miraculous economic development while maintaining heavy defense burden. In this study, we investigate how defense spending affects economic growth in these two countries employing the Mintz‐Huang model. The results reveal that there is no significant relationship between defense spending and economic growth in South Korea. However, defense spending indeed deters economic growth in Taiwan when its externality effects are considered.