Military Spending and Economic Growth in Taiwan

Abstract

This research probes the trade-off between economic growth and military spending, focusing on the experience of Taiwan, a society in which per capita GNP has grown from $100 to $9,000 in the past four decades. Using a production function approach, we explore the direct and indirect effects of the government's military and nonmilitary spending on economic growth. We find that Taiwan has avoided a direct trade-off in that military spending contributes to economic growth. At the same time, we find that Taiwan has paid an opportunity cost for its high level of defense spending, because the civilian sector of the economy has a much greater relative marginal productivity than the military sector,