J. Paul Dunne

MILITARY EXPENDITURE AND GRANGER CAUSALITY: A CRITICAL REVIEW

A large literature has used tests for Granger (1969) non‐causality, GNC, to examine the interaction of military spending with the economy. Such tests answer a specific although quite limited question: can one reject the null hypothesis that one variable does not help predict another? If one can reject, there is said to be Granger causality, GC. Although the limitations of GNC tests are well known, they are often not emphasised in the applied literature and so may be forgotten. This paper considers the econometric and methodological issues involved and illustrates them with data for the US and other countries. There are three main issues. First, the tests may not be informative about the substantive issue, the interaction of military expenditure and the economy, since Granger causality does not correspond to the usual notion of economic causality. To determine the relationship of the two notions of causality requires an identified structural model. Second, the tests are very sensitive to specification. GNC testing is usually done in the context of a vector autoregression, VAR, and the test results are sensitive to the variables and deterministic terms included in the VAR, lag length, sample or observation window used, treatment of integration and cointegration and level of significance. Statistical criteria may not be very informative about these choices. Third, since the parameters are not structural, the test results may not be stable over different time periods or different countries.

Military expenditure and debt in small industrialised economies: A panel analysis

This paper considers the impact of military spending on debt in a panel of 11 small industrialising economies using panel data methods. It provide estimates for fixed effects and random effects models and then moves on to consider dynamic models. The dynamics are found to be important and the results suggest that military burden does indeed have a positive impact on the share of external debt in GDP.This paper considers the impact of military spending on debt in a panel of 11 small industrialising economies using panel data methods. It provide estimates for fixed effects and random effects models and then moves on to consider dynamic models. The dynamics are found to be important and the results suggest that military burden does indeed have a positive impact on the share of external debt in GDP.

Military Spending in Sub-Saharan Africa: Some Evidence for 1967-85

This article is a contribution to the debate on the determinants and economic effects of military expenditure in less-developed economies. Recent empirical work has suggested that there is much to be gained from analysing groups of relatively homogeneous countries, and to this end it focuses on a sample of thirteen Sub-Saharan African countries over the period from 1967 to 1985. The econometric analysis uses data for the group of countries as a whole, a cross-sectional analysis of the country averages, and an analysis of the pooled country data. As regards the determinants of military spending, the results suggest that economic factors play an important role in determining the level of military burden across countries and over time for the sample as a whole. When the data are pooled, strategic factors such as wars, the size of the army and inertia become important. In a time-series analysis, military expenditure is also found to have a negative effect on economic development for the countries as a whole, through its negative indirect effects on human resource accumulation, investment allocations and the balance of payments. While this result is not found across countries, or when the data are pooled, the results still imply that there is no significant positive effect of military burden on economic growth. Together, these results show the value of attempting to capture both time-series and cross-sectional effects when analysing the determinants and economic effects of military spending and the value of dealing with relatively homogeneous groups of countries.

Military Expenditure, Economic Growth and Heterogeneity

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.

Arms Trade and Economic Development : Theory, Policy and Cases in Arms Trade Offsets

Introduction: Jurgen Brauer and J. Paul Dunne Part I: Theory and Policy 1. Do offsets mitigate or magnify the military burden? Lloyd J. Dumas 2. Using procurement offsets as an economic development strategy Travis Taylor 3. Mandatory defense offsets - conceptual foundations Stefan Markowski and Peter Hall 4. Economic aspects of arms trade offsets Jurgen Brauer 5. Arms trade as illiberal trade Ann Markusen 6. Defense offsets: policy versus pragmatism Ron Matthews Part II: Cases 7. Comparing British and German Offset Strategies Jocelyn Mawdsley and Michael Brzoska 8. Offsets and the Joint Strike Fighter in the UK and the Netherlands Keith Hartley 9. Nordic offset policies: changes and challeges Bjorn Hagelin 10. Evaluating defense offsets: the experience in Finland and Sweden Elisabeth Skons 11. Offsets in Belgium: between Scylla and Charybdis? Wally Struys 12. The defense industry in Poland: an offsets-based revival? Stefan Markowski and Peter Hall 13. Offsets and the development of the Brazilian arms industry Sam Perlo-Freeman 14. The Argentine defense industry: an evaluation Thomas Scheetz 15. The role of offsets in Indian defense procurement policy Angathevar Baskaran 16. Offset policies and trends in Japan, South Korea, and Taiwan Michael W. Chinworth 17. Offsets and defense industrialization in Indonesia and Singapore Richard A. Bitzinger 18. Defense offsets in Australia and New Zealand Stefan Markowski and Peter Hall 19. Defense industrial participation: The South African experience J.Paul Dunne and Guy Lamb 20. Defense offsets and regional development in South Africa Richard J. HainesIn many ways Britain and Germany share similar profiles as arms producers. But their policy on both import and export offsets are quite different. This chapter argues that only by considering the historical and cultural backgrounds to their procurement and arms export policies can their offset policy choices be fully understood. While Britain reluctantly accepts the existence of offsets to counteract imperfect markets (but tries to seek waiver agreements, especially in Europe), Germany has been able to use offsets creatively not only to develop its own industry but also to become a significant exporter. The chapter suggests that British attachment to competitive procurement and its strong export promotion network explain its relative dislike of offsets, while the historical background of the German defense industry has given it certain qualities that enable it to cope far more successfully with offsets.

Military spending and economic growth in South Africa

This paper undertakes an empirical analysis of the economic effects of military spending on the South African economy. It estimates a neo‐classical model common in the literature at the level of the macroeconomy and at the level of the manufacturing sector. An attempt is made to improve upon the model by allowing the data to determine the dynamic structure of the model through an ARDL procedure. No significant impact of military spending is found in aggregate, but there is a significant negative impact for the manufacturing sector. This suggests that the cuts in domestic military procurement that have occurred since 1989 could lead to improved economic performance in South Africa through their impact on the manufacturing sector.

The econometrics of arms races

There is now a large empirical literature on estimating arms races. This paper surveys some of the econometric issues involved in estimating action‐reaction models of such races. Starting from the traditional Richardson model, it examines issues of identification, specification, and the role of expectations and structural stability. This is done both for the case where the variables are stationary and where they may be I(1) and cointegrated.

The Econometrics of Military Arms Races

Arms races - enduring rivalries between pairs of hostile powers, which prompt competitive acquisition of military capability - appear to be a pervasive phenomenon. From the past Cold War competition, between the US and the USSR, to present regional antagonisms, such as India and Pakistan, arms races remain a matter of continuing concern. This chapter reviews the econometric issues involved in estimating models of military arms races, of the competitive acquisition of military capability by hostile powers. As econometrics involves the synthesis of theory, data and statistical methods, in reviewing the econometrics of arms races, as much attention is paid to theory and data as to statistical methods. After discussing the choice of data and the theoretical issues in specification, we then examine four types of model: time-series estimation of classical Richardson type action-reaction models, using India and Pakistan as an example; Markov switching estimation of game-theory type models, using Greece and Turkey as an example; cross-section models and panel models. Our first general conclusion is that the theory suggests that the parameters of arms race interactions are unlikely to be constant over time and the empirical literature largely confirms this. Nonetheless, cross-section and panel estimates may be useful in that they allow estimation of average interaction effects, which may allow one to calculate the costs of the spill over effects of increases in military expenditure in one country. Our second general conclusion is that globalization means that one cannot confine attention to a bivariate interaction between two countries without taking account of the wider strategic context. The emphasis in this literature is on quantitative-symmetric arms races, because those are easier to estimate, but this emphasis may be misleading, qualitative-asymmetric arms races, particularly between governments and their non-governmental opponents, may be much more important.

Peace, war and international security: economic theories

This paper considers the economic theories that are relevant for the study of peace war and international security . It presents different levels of generality, starting with the big questions of international security, which are usually the domain of international relations, before moving to general economic theoretical perspectives and then focusing on some specific developments in economics and security. More specifically it reviews the economics of security, distinguishing neoclassical theories, Keynesian and institutional, Marxist, and monopoly capital, before discussing the issues involved in the debate between the schools of thought. The economics of conflict is then considered, starting with the approach economists have taken –mainly neoclassical, before considering more general political economy perspectives.

Does Military Spending Matter for Long-run Growth?

Abstract The effects of military spending has on the economy continues to be a subject of considerable debate, with a lack of consensus in the literature. This paper takes advantage of the Stockholm International Peace Research Institute extended data-set to contribute to the debate using empirical methods made available, or more applicable, by the extra observations. It constructs a large panel of countries for the period 1970–2014 to explore the long-run equilibrium relationship between military spending and economic growth, applies the more flexible pooled mean group estimator, and compares the results with the more restrictive dynamic fixed effect method used in earlier influential studies. It also compares results from different time and country samples. Across the specifications it finds a significant and persistent negative effect of military burden on economic growth that is robust across different country groups, with the largest impact being for OECD countries.