The Economic Effects of the Sri Lankan Civil War

Abstract

A number of studies have used multicountry data sets to analyze the effect of higher military spending on growth in developing countries. E. Benoit's controversial 1973 study used a multicountry data set to provide evidence that military spending was positively associated with growth in LDCs.1 Later studies using multicountry data sets, such as those by D. Lim, S. Deger, S. Chan, and R. Faini, P. Annez, and L. Taylor found evidence that military spending depresses growth in LDCs.2 While multicountry data sets are useful, the effect that higher military spending has on growth does vary substantially among countries, depending on specific policy choices made regarding resource allocation. For this reason, it is also beneficial to use a case study approach in analyzing the relationship between defense spending and economic growth in LDCs. This article provides such a case study. It focuses on the small nation of Sri Lanka, which has recently seen a dramatic increase in its defense spending due to a violent civil war that began in 1983. This study analyzes the economic effects of the Sri Lankan civil war, and the potential future costs that could be associated with a continuation of this conflict.