Theoretical and Empirical Literature of The Relationship Between Defense Expenditures and Economic Growth

Abstract

In the economic literature, it is considered that defense expenditure, which is characterized as public spending, can negatively affect economic growth either through crowding out effect of investments within the framework of the Neo-Classical Approach, or positively affect economic growth by increasing aggregate demand within the framework of the Keynesian Approach. Benoit examined the relationship between economic growth and military spending in developing countries in his study in 1973 and he revealed the existence of a positive relationship between variables. This result has been described as the Benoit Hypothesis in the economics literature. Within the framework of the Benoit Hypothesis, the relationship between military spending and economic growth has been the subject of many academic studies. However, the findings obtained in the empirical literature made a difference, and a common conclusion could not be reached about the validity of the hypothesis. In this study, it is aimed to bring together the theoretical and empirical findings regarding the relationship between defense expenditures and economic growth.