The impact of defense expenditure on industrial development in the Arab Gulf

Abstract

Since the mid-1970s the Gulf economies have experienced an unprecedented growth in economic output and industrial production. The benefits of rapid increases in oil revenues were also distributed to neighboring countries through financial assistance, expanded trade, and jobs for skilled and unskilled workers. Concurrent with rapid economic growth was an acceleration in regional military spending. Military purchases were partially financed by oil revenues and by military aid and grants from the major arms suppliers.' Dur-ing this pe,riod, 'military expenditures have averaged around 30 per cent of central government expenditures. This compares with ,an average of around 20 per cent for most developing countries. Military expenditure per capita averaged around $500, while the average for developing countries as a whole was about $50. While the armed forces per 1,000 people averaged around 15 for the Middle East, developing countries, as a whole, experienced rates of only five per 1,000 people.2 Ironically, this increase in military expenditures coincided with rates of rapid growth throughout the Middle East. During the 1973-82 oil boom period the average annual economic growth rate in the Middle East was about 6.0 per cent while military expenditures grew by approximately 13.0 per cent per year. Although military expenditure levels vary across countries, in most of the countries the growth rate of military spending outpaced economic growth and, perhaps, even expenditures for economic development.3 This indicates a striking pattern in the region toward higher military burdens.' To date most of the analysis concerning Middle Eastern military expenditure has focused on strategic issues and the resulting shifts in regional military balance stemming from the recent explosion in defense expenditures. Most recently, analysts have begun examining the likely composition and extent of military sales to the region following the successful resolution of the Kuwaiti crisis. Those studies examining the economic effects from defense expenditure,s have focused largely on the identification of linkages between defense expenditures and overall economic growth. These studies have provided some insight about the shorter term economic costs (and