Impact of Military Expenditure on Economic Growth Encouraging or Constraining?

Dirga Ardian Nugroho(1), Evi Yulia Purwanti(2),

DOI: https://doi.org/10.15294/jejak.v14i1.26062


(1) Diponegoro University
(2) Diponegoro University

Abstract

Security is a form of guarantee that needs to be given by the state to its citizens. This fulfillment can be realized through the provision of national defense for all citizens. Nevertheless, military expenditure as a source of providing national defense needs attention. This is caused by its unproductive nature when compared to other sectors such as agriculture, banking, industry, and others. This study aims to analyze the effect of Military Expenditures on the level of Economic Growth. Furthermore, this study also analyzes the effect of interactions between Military Expenditure with other variables such as Population, Foreign Direct Investment (FDI), Political Stability, and Rule of Law, to see their indirect effects on Economic Growth. This study uses secondary data and covering 27 selected Lower-Middle Income Countries from 2002-2018. Furthermore, this study uses dynamic panel data analysis with the System Generalized Method of Moments (GMM) method. The Military Expenditure in this study does not significantly influence Economic Growth. However, it was found that Military Expenditure had a positive and significant influence on Economic Growth when interacting with other variables.

Keywords

National Defense, Military Expenditure, Economic Growth, System-GMM.

Full Text:

PDF

References

Aziz, N., & Khalid, U. (2019). Armed Conflict, Military Expenses and FDI Inflow to Developing Countries. Defence and Peace Economics, 30(2), 238–251. https://doi.org/10.1080/10242694.2017.1388066

Baltagi, B. H. (2005). Econometric Analysis of Panel Data (3rd Editio). Retrieved from https://books.google.co.id/books/about/Econometric_Analysis_of_Panel_Data.html?id=yTVSqmufge8C&redir_esc=y

Block, W. E. (2003). The Myth of National Defense: Essays on The Theory and History of Security Production. In Ludwig von Mises Institute. Retrieved from http://ww.mises.ch/library/Hoppe_Myth_of_national_defense.pdf#page=311

Clements, B. J., Gupta, S., & Khamidova, S. (2019). Is Military Spending Converging Across Countries? An Examination of Trends and Key Determinants. IMF Working Paper. Retrieved from https://www.imf.org/en/Publications/WP/Issues/2019/09/20/Is-Military-Spending-Converging-Across-Countries-An-Examination-of-Trends-and-Key-48556

College, T. U. S. A. W. (2016). Handbook For Military Support to Economic Stabilization. (March).

Drezner, D. W., & Hite-Rubin, N. F. (2016). Does American Military Power Attract Foreign Investment? Sustainable Security, m, 51–72. https://doi.org/10.1093/acprof:oso/9780190611477.003.0003

Dunne, J. P., Smith, R. P., & Willenbockel, D. (2005). Models of Military Expenditure and Growth: A Critical Review. Defence and Peace Economics, 16(6), 449–461. https://doi.org/10.1080/10242690500167791

Gerace, M. P. (2002). US military expenditures and economic growth: Some evidence from spectral methods. Defence and Peace Economics, 13(1), 1–11. https://doi.org/10.1080/10242690210966

Hou, N., & Chen, B. (2013). Military Expenditure and Economic Growth in Developing Countries: Evidence from System GMM Estimates. Defence and Peace Economics, 24(3), 183–193. https://doi.org/10.1080/10242694.2012.710813

Jhingan, M. L. (2012). Development Economics and Planning [Ekonomi Pembangunan dan Perencanaan] (1st Edition). Jakarta: PT Rajagrafindo Persada.

Kollias, C., Paleologou, S. M., Tzeremes, P., & Tzeremes, N. (2018). The Demand for Military Spending in Latin American Countries. Latin American Economic Review, 27(1). https://doi.org/10.1186/s40503-018-0059-8

Olumuyiwa, T., & Olalekan, C. (2014). Does Military Expenditure Influence Economic Growth in Nigeria During 1989 - 2013? A Bound Testing Approach. Romanian Journal of Fiscal Policy (RJFP), 5(2), 56–71.

Rahman, T., & Siddiqui, D. A. (2019). The Effect of Military Spending on Economic Growth in the Presence of Arms Trade: A Global Analysis. SSRN Electronic Journal. https://doi.org/10.2139/ssrn.3401331

Roodman, D. (2006). How to Do xtabond2: An Introduction to “System†and “Difference†GMM in Stata. Centre for Global Development, (103), 1–48.

SIPRI. (1999). SIPRI Yearbook 1999. In Ind Corp Change (Vol. 9). https://doi.org/10.1093/icc/9.4.757

Which Countries are Most Likely to Fight Wars? (2018). Retrieved January 30, 2020, from The Economist website: https://www.economist.com/graphic-detail/2018/11/08/which-countries-are-most-likely-to-fight-wars

Wisniewski, T. P., & Pathan, S. K. (2014). Political environment and foreign direct investment: Evidence from OECD countries. European Journal of Political Economy, 36, 13–23. https://doi.org/10.1016/j.ejpoleco.2014.07.004

Refbacks

  • There are currently no refbacks.


Bookmark and Share


Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.