Somnath Sen

Military expenditure, spin-off and economic development

Abstract This paper analyses the strategic causes and the economic spin-off effects of military expenditure in less developed countries. A formal optimising model is used to show that defence burden in LDCs may be analysed principally in terms of strategic factors such as security and threat, and is determined relatively autonomous of economic factors. Given this autonomousness, we scrutinise the widely held belief that defence expenditure has a substantial spin-off in the form of technological progress, R&D, skill creation, effective demand — all of which has positive developmental effects. Econometric evidence for India shows that such claims are exaggerated and economic spin-off from defence to development is weak.

Military expenditure and developing countries

Military expenditure in developing countries raises complex questions regarding growth, development, security and governance. This chapter provides an analytical survey of the effects and causes of defense spending in developing economies. Using stylized facts, theoretical models and empirical results, it discusses some core aspects of the interrelationship between defense and development. The chapter emphasizes two major issues in the field: economic growth and defense spending; security and development. Although the issues are placed in a broad framework, the focus of the chapter is on economic aspects of the interaction of military expenditures with growth and developmental factors.

Optimal control and differential game models of military expenditure in less developed countries

Abstract This paper presents optimal control and differential game models of military expenditure in less developed countries. We emphasise the strategic interconnections between aggressive neighbours and explicitly stress the optimal resource allocation problem between civilian and military expenditure. A major innovation of the analysis is to analyse the asymmetric reaction functions of the two agents and the formalisation of the stylised fact that most LDC arms races have taken place between participants of ‘unequal’ size.

Military expenditure and economic development: An endogenous growth perspective

This paper attempts to analyse the interrelationships between government and military expenditure and economic growth in particular, and between security and development in general, in a new framework. It has three novel features. First, the impact of military spending (as well as any other government spending which has similar externalities) is studied in an endogenous growth framework unlike most of the previous research in the field. Second, growth, welfare and security effects are studied simultaneously. Third, simulation studies are made for specific countries to capture long-term steady state effects which are difficult to analyze in longitudinal case studies.

Monetary Policy Rules and Business Cycle in China: Bayesian DSGE Model Simulation

In this paper, using a benchmark Bayesian Dynamic Stochastic General Equilibrium (Bayesian DSGE) model (Smets-Wouters Model) with Taylor’s rule and a modified Smets-Wouters model with a money growth rule, we have simulated China’s monetary policy transmission process and the roles of monetary variables and non monetary variables in China’s business cycle by incorporating many so-called New Keynesian Macroeconomic (NKM) approaches such as nominal stickiness and market imperfections in the model. The estimated values of the parameters in the model by Bayesian approach based on China’s quarterly time series data feature the unique characters of China’s economy compared with that in the US and the Euro area. The simulation results in terms of the Taylor’s rule and money growth rule (MacCullum Rule) highlight the monetary transmission mechanisms of China’s monetary policy and the diverse contributions of monetary shocks and non-monetary shocks to China’s business cycle.

Size Effects on the Transmission Mechanism from Finance to Development: A Study of Large Emerging Economies

Large emerging economies, typically Brazil, India, China and South Africa (BICS), demonstrate a strong upward trend in many aspects of their macroeconomic performance in recent decades. This surge is attributed to ‘size effects’ whereby economies of scale and scope, and agglomeration impact, create productivity improvements. This paper concentrates on both conceptual and empirical studies about the most important contributions from real and financial sectors towards economic growth in large emerging economies. In particular, the transmission channels from finance to growth are discussed in this paper, to show how size effects can affect these transmission mechanisms from finance to development. The econometric estimations use a structural vector autoregressive (SVAR) model for four specific large emerging economies – BICS – and analyse dynamic shocks from real sectors and financial sectors, together with size‐effect variables: education investment, government spending and military expenditures. We conclude that real shocks have much higher impact effects on output and growth compared to financial shocks.

Editorial Introduction: Arms Exports, Controls and Production

The arms trade is interesting because it is where foreign policy concerns such as security, human rights and international order interact most directly with economic concerns such as trade, jobs and profits. The control of arms exports remains a matter of policy concern both within countries and within multilateral organisations. This special issue of Defence and Peace Economics contains a set of closely linked papers on Anns Exports, Controls and Arms Production given at the June 1999 Conference at Middlesex University Business School on the Arms Trade, Security and Conflict. Todd Sandier was rapporteur at the Conference and his paper in this issue pulls together the themes discussed at the Conference as examples of collective action problems. The Conference marked the end of a three year ESRC funded project on the ArmsTrade(forthepapersseehttp://mubs-r.mdx.ac.uk/ArmsTrade/). One can imagine supplier governments determining their levels of arms exports in the light of their economic and security objectives subject to the constraints of the market, and the nature of the demand for arms by buyer governments. The constraints of the market may include either competition from other suppliers or various forms of co-operation including arms exports controls, and agreements between suppliers to restrict sales to particular destinations. The nature of the demand by buyer governments will reflect their security objectives, budget constraints and alternative sources of arms, in particular the possibility of domestic production. The papers in this issue examine various aspects of this process at both the empirical and theoretical levels. Keith Hartley examines the costs and benefits of arms exports for the UK economy and brings out how difficult it is to obtain precise empirical measures of these costs and benefits. Jurgen Brauer looks at the evidence on the capability to produce arms and actual production in developing countries. Garcia-Alonso and Hartley consider controls

The First and Second Stage Pass‐Through of Exchange Rates: A Developing Country Perspective

This paper investigates the validity of the conventional wisdom that, unlike in developed countries, exchange rate pass-through (ERPT) should be ‘complete’ for developing economies. To test this hypothesis, we construct new variables as well as original data sets, which are not readily available in the literature, and employ an alternative error correction model technique for a typical small open developing economy—Bangladesh. The transmission of exchange rate movements to import prices is found to be ‘complete’; however, the ‘second stage pass-through’ is ‘partial’ both in the short and long run. The response of traded goods prices to exchange rate shocks is found to be significant and larger in the long run compared with the short run. Trade liberalization is also a significant phenomenon for ERPT. The analysis has wider applicability to other small open economies.

Equity Market Liberalization, Credit Constraints and Income Inequality

This paper provides compelling evidence that equity market liberalization, the most efficient way to smooth financial market frictions such as credit constraints, can alleviate persistent cross-dynastic income inequality through increasing the accumulation of human capital. We examine the impact of equity market liberalization on inequality by using the data of 72 countries during 1980-2006. The effect is robust to alternative measurements of equity market liberalization. Furthermore, equity market liberalization is associated with the different effects of credit constraints on the persistence of cross-dynastic income inequality. Finally, it is proved that foreign equity flows benefit the initially less active stock markets more than the active ones, which is important evidence that foreign equity flows act as a substitute for the domestic financial market. This finding emphasizes the importance of equity market liberalization for the poor, which helps to reduce inequality.

The Disarmament Dividend

. In 1990-1991, worldwide military expenditure amounted to