Abstract:
This paper examines the impact of military expenditure on economic growth on a large
balanced panel, using an exogenous growth model and dynamic panel data methods for 106
countries over the period 1988-2010. A major focus of the paper is to consider the
possibility group heterogeneity and non-linearity. Having estimated the model for all of the
countries in the panel and finding that military burden has a negative effect on growth in
the short and long run, the panel is broken down into various groupings based upon a range
of potentially relevant factors and the robustness of the results is evaluated. The factors
considered are different levels of income, conflict experience, natural resources abundance,
openness and aid. The estimates for the different groups are remarkably consistent with
those for the whole panel, providing strong support for the argument that military spending
has adverse effects on growth. There are, however, some intriguing results that suggest that
for certain types of countries military spending has no significant effect on growth.
