Defense Economics Research Articles

The correlates of transatlantic burden sharing: revising the agenda for theoretical and policy analysis

ABSTRACTWhile recent work has attempted to update the research agenda for transatiantic defense burden-sharing, there remain significant gaps between the public choice defense economics literature and the security studies literature. The presence of such a gap is unfortunate, because defense spending choices are likely shaped by factors identified by the public choice literature, as well as the strategic and cultural variables that the security studies literature tends to focus on, as well as domestic macroeconomic factors. The independent variables identified in recent qualitative literature are extremely useful analytically, and, fortunately, they have reasonable proxies in available quantitative data, which enables scholars to study them across large groups of countries and many years. This article builds upon such work to synthesize the most notable of the factors identified in the current literature, and offers some common analytical ground that will benefit both scholars and practitioners..

Book Reviews

Mario Ferrero of the University of Eastern Piedmont reviews “Economic Aspects of Genocides, Other Mass Atrocities, and Their Prevention,” edited by Charles H. Anderton and Jurgen Brauer. The Econlit abstract of this book begins: “Twenty-eight papers present theoretical, empirical, case-study, and policy-oriented research on the nature and importance of the economic aspects of mass atrocities and their prevention, addressing gaps in the fields of defense and peace economics and genocide studies. Papers focus on economics and mass atrocities; theoretical approaches and reviews of empirical literature; case studies; and moving toward prediction and prevention.”

Negara dan Kapasitas Adopsi Inovasi: Studi Kasus Tranformasi Pertahanan Indonesia Periode 1998-2014

Artikel ini bertujuan untuk mengeksplorasi faktor eksplanatif yang menyebabkan reformasi sektor keamanan Indonesia kurang efektif. Secara umum, reformasi militer Indonesia dapat diterjemahkan ke dalam beberapa aspek: normatif (kerangka regulatif), substantif (doktrin militer), struktural (organisasi militer) dan ekonomi pertahanan. Artikel ini menerapkan kerangka kerja difusi militer yang dikemukakan Horowitz, terutama dalam melihat intensitas keuangan dan modal organisasional, sebagai faktor utama dalam menjelaskan adaptasi inovasi militer dalam sistem internasional. Di akhir artikel ini, penulis menyimpulkan bahwa kedua aspek tersebut terbukti menjadi faktor utama dibalik kurang efektifnya transformasi pertahanan Indonesia .

Measuring the Impact of Military Spending: How Far Does a DSGE Model Deviate from Reality?

Dunne, Smith, and Willenbockel (2005) argue that the mainstream growth literature has not found military spending to be a significant determinant of economic growth, yet much of the defense economics literature has noted significant effects. This paper revisits this issue by using a DSGE-VAR approach, combining both theoretical and empirical methods. We present that the DSGE approach (estimated with the Bayesian technique) and the Bayesian VAR with the Minnesota Prior both lead to worse in-sample fit than our proposed DSGE-VAR framework. The DSGE-VAR approach reveals that a positive military spending shock boosts the U.S. economy, increasing per capita real GDP growth, consumption, inflation and interest rate. Our results are robust to alternative model specifications. Future investigations such as exploring an optimal military spending policy could adopt the approach in this paper to determine the best model – empirical, theoretical, or a combination of the two.

Military expenditure and economic growth in Middle Eastern countries and Turkey: a non-linear panel data approach

The economic growth effects of military expenditure have been the subject of a large literature in defence economics. Theories on the economic impacts of military expenditure greatly differ and include arguments that they either enhance economic growth or crowd out productive investments. Empirical literature on defence expenditure and economic growth nexus generally employs linear specifications to investigate the impact of defence expenditures on economic growth. Although it is now well established that many economic variables may have a non-linear data-generating mechanism, it seems that this reality has long been neglected in empirical work on defence–growth nexus. This paper attempts to fill this gap by employing non-linear panel data models to examine the effects of military expenditures on economic growth for Middle Eastern countries and Turkey, for the time period 1988–2012. Results show that the effect of military expenditure on economic growth is nonlinear such that the state of the economy actually determines the effect of the former on the latter. This is important not only in showing asymmetric relationship between these variables but also in revealing the reasons of mixed results of earlier literature.

Defence and Peace Economics

Defence and Peace Economics

Development economics of defence in Czechoslovakia and the Czech Republic 1950–2015 in comparison with the economics of defence in developed countries

Development economics of defence in Czechoslovakia and the Czech Republic 1950–2015 in comparison with the economics of defence in developed countries

Empirical Study on Relationship between Defense Expenditure and Economic Development Based on Functional Data Cluster Algorithm

Defense spending should flt for economic development and social afiord ability, thus study on the equilibrium relationship between defense spending and economic development is very important. This paper applies functional data clustering algorithm to categorize the countries by defense burden. It excludes interference of unexpected factors, transforms discrete data to continuous data, and flnally gets two groups of countries with higher and lower defense burden respectively. According to the clustering results, through panel data model, it explores the relationship between defense expenditure and economic development of each category. Results show that using functional data clustering algorithm, we can get difierent cluster results from traditional classiflcation. Each category includes both developing and developed countries. In addition, there exists long-term stable equilibrium relationship between defense expenditure and GDP in each class, but defense expenditure difierently impacts on economic growth in difierent countries.

Military expenditures, economic growth and spatial spillovers

The relationship between economic growth and military expenditure has been the subject of a large literature in defence economics. This study analyses the influence of military expenditures on economic growth in a global perspective for the time period 2000–2010 taking spatial dimension into account. The augmented Solow model is employed to investigate the defence-growth nexus using the cross-sectional data relating to 128 countries. Following a traditional regression analysis, spatial variations in the relationships are examined utilizing different spatial econometric specifications estimated by maximum likelihood. The regressions are compared with each other via likelihood ratio tests, and the spatial Durbin model is found to be the most appropriate one suggesting that the typical least-squares model is misspecified. Empirical evidence indicates that military expenditure has a positive effect on economic growth with a significant spatial dependence for the time period under consideration.

ASSESSING THE REGIONAL ECONOMIC IMPACTS OF DEFENSE ACTIVITIES: A SURVEY OF METHODS

AbstractDefense activities exercised in a specific region may alter the region's economic performance. An accurate assessment of the potential economic impacts of defense activities is a valuable undertaking to enable regional planners to prepare for changes. The variety in the methods (among others, input–output models, economic base models, Keynesian regional multipliers, fixed‐effects estimators, and case‐study approaches) inspired by geography, sociology, and political science can pose a dilemma. We detail the historical and theoretical background of each method, as well as select exemplary cases where these methods were applied. By examining old and “new” methods, we aim to construct a typology that could be valuable to all stakeholders. In this sense, defense economics can also contribute to the allied social sciences by outlining evaluation methods that may be applicable to other fields.

Defense Spending and Unemployment in France

France has received little attention in the literature of defense economics, despite some outstanding features of the country’s situation. This study attempts to partially fill this gap with new empirical evidence which evaluates the influence of military expenditure on the unemployment rate between 1975 and 2008. Our estimation is based on the ARDL approach to cointegration. The results reveal that both defense and non-defense spending exert a negative influence on unemployment but that defense spending has a higher negative impact.

New Quantitative Estimates on Long-Term Military Spending in Spain (1850-2009)

The substantial resources devoted to warfare in modern times might explain the increasing relevance that military spending has acquired in social sciences. In this regard, the so called defence economics has extensively studied the main determinants of military spending and its main consequences in terms of economic performance and institutional transformations. However, one of the main problems for comparative analysis on the causes and effects of military spending is the lack of long-term homogeneous and comparable data in international panel datasets. This paper contributes to fill in this gap by providing new military spending data on Spain from 1850 to 2009 based on the NATO methodological criterion. It provides total military spending estimates as well as economic and administrative disaggregated figures for most of the period. The data allows reliable international comparisons while also provide new quantitative evidence to better understand the military history of Spain in modern times.

2012 Editor's Report

On July 1st of 2012, I became editor of Economic Inquiry. I inherited a very strong program from my predecessor, Preston McAfee who introduced a number of innovations, which I largely have kept intact. Preston has worked closely with me to ensure a smooth transition, and that transition is now largely complete. I am extremely grateful for his encouragement, support and guidance, and that he remains involved in the journal as a co-editor. In the 2012 volume of Economic Inquiry, there are 71 papers that cover the breadth of economics. These papers include articles in both micro- and macro-economic topics as well as a balance of theory and empirically oriented papers. As Economic Inquiry is a general journal, I plan to continue to solicit papers in all fields, and to continue the long tradition of soliciting papers that have a strong sense of purpose, make substantial contributions, and are of interest to specialists and non-specialists. Over the years, Economic Inquiry has become an outlet for sports, health, and experimental economics. And, by casual empiricism, there has been growth in both sports and experimental and a modest decline in health. As is often the case, there have been some changes in the editorial board since the last Editor's Report. Peter Arcidiacono, Nezih Guner, and Cedric Tille have resigned as co-editors, and Bruce McGough (University of Oregon), Salvador Navarro (Western University), and Robert E. Rosenman (Washington State University) are new co-editors. Specialized editor William Rogerson (Northwestern University, for Defense Economics) has stepped down, and former co-editor Randall Walsh now is a specialized editor. Newly appointed specialized editors include Bruce Blonigen (University of Oregon, for Multinationals and Trade Policy), Luke Froeb (Vanderbilt University, for Competition Policy), Bruce McGough (University of Oregon, for DSGE Models and Bounded Rationality), Robin McKnight (Wellesley College, for Health Economics), and Jame P. Ziliak (University of Kentucky, for Poverty and Inequality). I am extremely grateful to the co-editors (general and specialized) for their commitment to making good and timely decisions that are consistent with the aims of the journal. I am also grateful for their expertise and their flexibility in developing policy and solutions to the myriad of issues that arise in editing a journal. I have retained the policy of having a set of specialized co-editors. I have, however, asked the specialized co-editors, who handle up to 20 papers per year, to help support the journal by handling papers that are in their more general areas. The specialized areas that I added are grounded in somewhat more traditional fields, but represent specific growth areas within the field. These include: international trade (multinationals and trade policy), industrial organization (competition economics), macroeconomics (DSGE models and bounded rationality), public economics (health economics), labor and public economics (poverty and inequality). In each case, these were established in conjunction with the specialized co-editors. I very much like the concept of specialized areas, and plan to support the concept by publishing groups of papers in each area in addition to creating a web page that documents each area. Currently, I am planning to publish a group of papers, currently edited by Ted Bergstrom, in the specialized area of the economics of publishing. This group will likely appear in the January or April issue of 2014. Table 1 summarizes 2012 vis-a-vis previous years. In 2012, there were 468 new submissions, which is down 32 from the previous year. Most of the decline was from the first six months, and from discussions of editors at the ASSA meetings, there were similar declines in other general interest journals as well. I note that as of June 1, 2013, submissions stand at 480, and, if June is similar to that of prior years, the 12 months since July 1 should exceed that of 2011. …

THE DEFENCE-DEBT NEXUS: EVIDENCE FROM THE HIGH-INCOME MEMBERS OF NATO

The literature in defence economics has tended to focus on the relationship between defence spending and economic growth. Studies examining the linkage between defence spending and government debt have been relatively rare. Given the recent Global Financial Crisis, originating in the developed economies, and the changed international security picture since 9/11, it is timely to reconsider the defence-debt nexus in the rich economies. This study pays particular attention to developing an empirical strategy which is both soundly based on economic theory concerning the evolution of public debt and which uses econometric methods that are welladapted to the dynamic aspects of the relationship. From the standpoint of economic theory, if a government seeks to minimize the distortionary costs of taxation, then taxation will follow a random walk. Unexpected shocks (war and recession) will cause debt. Other idiosyncratic national-level political considerations that affect the evolution of debt can be factored out by the use of a dynamic panel estimation method. Employing the Arellano–Bond dynamic panel model to the data available from members of the Organization for Economic Co-operation and Development and North Atlantic Treaty Organization over the periods 1988–2009 and 1999–2009, this study finds that the defence burden is a statistically significant and economically important determinant of public debt.

Space-use scaling and home range overlap in primates.

Space use is an important aspect of animal ecology, yet our understanding is limited by a lack of synthesis between interspecific and intraspecific studies. We present analyses of a dataset of 286 estimates of home range overlap from 100 primate species, with comparable samples for other space-use traits. To the best of our knowledge, this represents the first multispecies study using overlap data estimated directly from field observations. We find that space-use traits in primates are only weakly related to body mass, reflecting their largely arboreal habits. Our results confirm a theory that home range overlap explains the differences in allometric scaling between population density and home range size. We then test a suite of hypotheses to explain home range overlap, both among and within species. We find that overlap is highest for larger-bodied species living in large home ranges at high population densities, where annual rainfall is low, and is higher for arboreal than terrestrial species. Most of these results are consistent with the economics of resource defence, although the predictions of one specific theory of home range overlap are not supported. We conclude that home range overlap is somewhat predictable, but the theoretical basis of animal space use remains patchy.

Military spending, technical progress, and economic growth: a critical overview on mainstream defense economics

This article, which focuses on the macro-dynamic branches of defense economics, aims at showing that the mainstream literature – the neoclassical school or the methodologies closely related to it – devoted to the effects of military spending stumbles over worrying difficulties, by throwing light on its insuperable theoretical and empirical limitations. The authors’ criticism applies to: demand-side and supply-side models (first part); formalizations with technological spin-off effects, externalities or public goods (second part); and simulation models, including the most recent ones with endogenous technical progress growth models (third part).JEL Codes: H56, O31, O32, O47, P43

The Economics of Smart Defense

Introduction: Difficult ChoicesNATO's proposal claims to be a new way of thinking about generating defense capabilities. It encourages allies to cooperate in developing, acquiring, and maintaining military capabilities. It means pooling and sharing capabilities, setting priorities, and coordinating efforts better. It involves member states not spending more but spending better; it is about specializing in what we do best and seeking multinational solutions to common problems.1Smart Defense has economic dimensions that need to be clarified and assessed critically. We do not live in a world of magic wand economics, where declarations of intent miraculously lead to efficiency improvements in defense markets. Smart Defense cannot ignore the incentives and constraints that operate in defense markets at both the national and Alliance levels.The financial and economic crisis of the past five years has meant cuts in national defense budgets, which have meant that nations cannot avoid the need for more and continuing difficult defense choices. Inefficiencies within member states' defense markets and within NATO have to be addressed. For each member state, budget pressures and rising input costs mean that, yet again, something has to go. The question is, What are the options and what goes?Furthermore, defense budgets that have been cut in real terms still have to finance defense equipment, which is both costly and becoming costlier. For example, intergenerational cost growth on U.K. main battle tanks and combat aircraft was almost 6 percent. The unit cost of the Hunter fighter aircraft was £4.6 million in 1955, compared with today's replacement, the Typhoon, at a unit cost of £72 million (2012 prices). Of course, the Typhoon is superior to the Hunter in terms of speed, weight, complexity, and capability.2 Such rising unit costs, which affect all nations, have led some commentators to forecast a future single-ship British Navy, a single-tank British Army, and a 'Starship Enterprise' for the Royal Air Force!The defense economics problem is clear. Defense budgets-which are constant or falling in real terms, and subject to costly and rising equipment costs-mean that difficult defense choices cannot be avoided. National defense policies will have to consider a range of choices affecting equipment and personnel. While these choices will include numbers of personnel and equipment, there are also substitution possibilities within equipment and personnel and between equipment and personnel.Some of these choice problems can be avoided where there are inefficiencies in defense spending. The defense economics problem identifies the need to increase the efficiency of defense spending, and this applies to all member states and NATO. Of course, efficiency improvements also involve winners and losers: some of the interest groups that currently benefit from consuming inefficiency will lose from efficiency improvements. Examples of inefficiencies in defense markets include non-competitive procurement policies, preferential purchasing (e.g., buy-national policies), a failure to assess the efficiency of military units, and the duplication of armed forces and defense industries in NATO.Inefficiencies in NATO Defense MarketsNATO is an inefficient organization for providing both armed forces and defense equipment. Inefficiency embraces opportunities for choosing an ideal or socially-desirable level of defense output and/or achieving the same defense output at a lower cost. Here, major problems arise, since defense markets are different. Compared with commercial markets, where there are large numbers of buyers and sellers, defense markets are dominated by governments as major or monopsony buyers, usually facing a national monopoly or oligopoly supplier of defense equipment. As major or only buyers, governments can determine the size of their national defense industry, its ownership, structure, and performance. …

Technological change and disruptive trends in the support of defense systems in France

Defense support is defined as all the means contributing to the readiness of military forces. The literature in defense economics presents very little analysis of defense support in its different forms. Neither space nor base locations have been deeply analyzed in that literature. This paper aims to bridge this gap by discussing and defining preliminary steps of a research agenda in order to connect defense and spatial economics in the case of defense support activities. This contribution discusses the on-going transformations and especially technological changes in the MRO (Maintenance, Repair and Overhaul) of defense systems in the French army. With concepts from spatial economics, this paper aims at examining the geographic pattern of the defense system and new types of economic interconnections (e.g. outsourcing, Public Private Partnerships and “productive duality”) between military and civilian activities. This paper aims to answer to the following questions: What are the main trends in the evolution of defense support for modern defense platforms that embody increasing technology? What are the consequences of such trends for the defense system as a whole? Finally, considering both economic and spatial organizational innovations, how can the defense support system be optimized?JEL Codes: D61, H11, H56

국방모델 개발을 위한 공통 모의논리 제안과 활용방안에 관한 연구

To improve the efficiency and economics of national defence, the needs for defence M&S systems are greatly increased, but the lack of interoperability and reusability lowers the level of reliability in the existing simulations models. Recently, many research activities have been performed and some conceptual models, such as CMMS, DCMF, and KAMA, were introduced. However, these models don't support the whole process of defence M&S system development nor provide integrated domain knowledge and up-to-date data. In this paper, we analyzed the analysts' guidances and doctrines, which are the basic ingredients for the simulation system development, and proposed a systematic structure for all the defence M&S stakeholders to share the standardized domain knowledge, modeling algorithm and data. This will be a logical bridge between Mission Space and Simulation Space, and provide substantial data sets to build simulation systems.

Using the Feder-Ram and Military Keynesian Models to Examine the Link Between Defence Spending and Economic Growth in Sri Lanka

This study uses the Feder-Ram model in conjunction with the military Keynesian model to examine the nexus between defence spending and economic growth in Sri Lanka. We find that the Keynesian aggregate demand model is better suited to analyse the link than the Feder-Ram model for the case of Sri Lanka. Based upon our results we expect a higher economic growth rate in Sri Lanka if more public resources are diverted from the defence to civilian sectors of the economy, now that the war between the government and separatist guerrillas has come to an end. However, recent post war events cast doubt upon whether a diversion of sources from military to non-military spending will actually occur. We conclude that the sanguine predictions of our economic analysis are entirely dependent upon the political decisions of the Sri Lankan government for their realization.