Uk Heo

Modeling the Defense-Growth Relationship around the Globe

One of the most important questions stemming from the end of the cold war is how reductions in defense spending will affect economic performance. This question has significant policy implications for countries facing public demands for defense cutbacks and countries still maintaining high levels of military spending for security. However, previous studies on the defense-growth relationship have reported mixed findings. Thus, this study investigates how the changes in defense burden will affect economic growth by testing the economic effects of defense spending on growth in 80 countries using a nonlinear defense-growth model that includes technological progress. The results reveal that two thirds of the countries under investigation may expect a “peace dividend” due to the negative relationship between defense spending and economic growth.

The Relationship between Defense Spending and Economic Growth in the United States

Recent increases in U.S. defense spending have renewed interest in the defense—growth nexus. The Feder-Ram—based models have traditionally been used in examining this relationship, but Dunn, Smith, and Willenbockel recommend the augmented Solow model because of several weaknesses inherent in the Feder-Ram model (including its static nature, simultaneity bias, and multicollinearity issues). The augmented Solow model addresses these issues, but it has weaknesses too. Thus, by employing both the Feder-Ram and augmented Solow models, the author tests the defense—growth nexus in the United States for 1954 through 2005. The results indicate that defense spending does not significantly affect the U.S. economy.

Military Expenditures, Technological Change, and Economic Growth in the East Asian NICs

In the last 30 years the East Asian NICs (Indonesia, Malaysia, South Korea, Taiwan, and Thailand) have experienced significant economic and technological expansion alongside increases in military spending. We derive a production function model that is sensitive to both technological progress and the defense sector. We employ the model to assess the relationship between military spending, economic growth, and technological change in the East Asian NICs for 1961-90. Although the effects of defense spending vary across the countries, the general trend is that when technological progress is specified in the production function, defense spending has negative impacts on economic growth in the region.

Defense Spending and Economic Growth in South Korea: The Indirect Link

Due to the lingering food crisis, speculations about the collapse of the North Korean regime have intensified in recent years. The collapse of the North Korean regime is expected to generate a tremendous economic burden on the South Korean economy. Moreover, the current economic crisis in South Korea requires a tight fiscal policy. Thus, on the basis of the peace dividend argument, some suggest that South Korea should reduce its military expenditures to prepare for the upcoming extra economic burden. For this reason, the economic effects of defense spending on growth in South Korea are a significant concern for policymakers as well as scholars. I examined the economic effects of defense spending on growth in terms of time and magnitude by investigating the direct effects as well as the indirect impacts (via investment and export) of military spending on economic growth. A three-equation econometric model was specified and empirically tested using South Korean data for 1954-95. The findings of this study reveal that the overall economic effects of defense spending on growth are negative although they seem to be indirect or delayed.

Paying for Security

To investigate the direct and indirect effects of defense spending on economic growth, the authors develop a multilink (via investment, employment, and exports) defense-growth model and test it with U.S. data for the time period from 1951 to 2000. By doing so, they advance previous scholarship on the indirect effects of the defense-growth trade-off through both a theoretical and empirical investigation of multiple indirect channels. Using a nonlinear four-sector production function model that incorporates labor, capital, technology, and exports, they test the direct and indirect impacts of defense spending on growth. Defense spending has a negative, indirect effect on economic growth via investment and export while the direct impact on growth seems to be rather small. Nonmilitary government spending has economic effects on growth that are similar to those associated with military spending.

The Defense-growth Nexus in the United States Revisited

Despite a large volume of work on the defense-growth relationship in the United States, previous studies have failed to reach a consensus. Part of the explanation of the mixed results may be that various data sets and model designs have been employed. Thus, using an updated (1948-1996) and longer data set, I test several of the more prominent defense-growth models. This research design will eliminate sampling bias and increase reliability of findings. The results of this research design show that defense spending does not have a significant, direct impact on economic growth in the United States. Instead, nonmilitary government expenditures have significant, negative effects on economic growth.

Defense Contracting and Domnestic Politics

Scholars have investigated the relationship between defense spending and domestic political constraints. Because of a two-year time lag, however, it is difficult to make a theoretical link between the aggregate defense budget and domestic politics. We focus on defense contract awards because of their rapid turn-around. We advance the referendum model to account for variations in the timing of defense contracts within administrations. The referendum model posits that government policies are reflective of approval ratings and that the President uses defense contracts to counter sagging approval and/or a weak economy This is a subtle but important alternative to political business cycle (PBC) models which constrain political manipulation of the defense budget to the electoral cycle. An empirical model is tested using pooled time-series analysis which allows us to assess variation within administrations. The analysis reveals that presidential approval, war, presidential reelection, and unemployment are determinants of defense contracting.

Reward, punishment or inducement? US economic and military aid, 1946–1996

If the US has wielded power as global hegemon, then there should be evidence of a linkage between American resources and the ability to influence behavior. However, there is widespread disagreement on how this power is manifested (see Krause, 1991). Methodological and epistemological issues have hampered empirical studies of US hegemonic behavior. For example, does the US reward past behavior or does it offer inducements for future behavior? We document and discuss these issues in terms of the aid-foreign policy compliance nexus. The empirical portion of our paper tests whether US military and non-military aid are correlated with foreign policy similarity. The main merits of our study are that: (1) we test a new measure of foreign policy similarity developed by Signorino and Ritter (1999) and compiled by Gartzke et al. (1999); (2) we relax the causality issue and test using vector autoregression (VAR) for 76 developing countries; and (3) our time horizon is a minimum of 30 years for each country. Our central finding is that aid is most often used as a reward. More specifically, foreign policy similarity leads to greater economic aid for most African countries, foreign policy similarity leads to greater military aid for a majority of Latin American states, and there are no overarching patterns for Asia and the Middle East. We discuss the implications of our findings in the context of the bargaining and structural approaches to statecraft.If the US has wielded power as global hegemon, then there should be evidence of a linkage between American resources and the ability to influence behavior. However, there is widespread disagreement on how this power is manifested (see Krause, 1991). Methodological and epistemological issues have hampered empirical studies of US hegemonic behavior. For example, does the US reward past behavior or does it offer inducements for future behavior? We document and discuss these issues in terms of the aid–foreign policy compliance nexus. The empirical portion of our paper tests whether US military and non‐military aid are correlated with foreign policy similarity. The main merits of our study are that: (1) we test a new measure of foreign policy similarity developed by Signorino and Ritter (1999) and compiled by Gartzke et al. (1999); (2) we relax the causality issue and test using vector autoregression (VAR) for 76 developing countries; and (3) our time horizon is a minimum of 30 years for each country. Our central finding is that aid is most often used as a reward. More specifically, foreign policy similarity leads to greater economic aid for most African countries, foreign policy similarity leads to greater military aid for a majority of Latin American states, and there are no overarching patterns for Asia and the Middle East. We discuss the implications of our findings in the context of the bargaining and structural approaches to statecraft.

Modernization and the Military in Latin America

In the 1950s modernization began to be an important paradigm for Latin American development. Early modernization theory depicted the economies of Latin America as traditional and underdeveloped. The theme of technological progress runs consistently through the modernization model. The purpose of this article is to assess an important question raised by Latin American development studies: that large allocations for the military sector are conducive to economic growth in Latin America. While this modernization literature is somewhat dated, many recent quantitative studies have also shown positive economic benefits from defence spending in the Third World. The added relevance here is that our model captures technological progress. After controlling for technological progress and externalities, our analysis shows that the military portion of budgets in Latin America have actually hindered modernization. We discuss these findings in terms of regime type and levels of US military aid to the region.

Political Choices and Economic Outcomes A Perspective on the Differential Impact of the Financial Crisis on South Korea and Taiwan

South Korea and Taiwan have gone through similar experience of political and economic development in the past several decades. Both countries have achieved miraculous economic developments under the government-led development paradigm and have gone through democratization process in the 1990s. Despite the similarity in developing history, the 1997 financial crisis experiences are quite different between the two countries. South Korea was hit hard by the crisis, whereas the crisis barely touched Taiwan. What caused the difference? The authors argue that the difference in the impacts of the crisis and the resulting outcomes on South Korea and Taiwan is a result of existing political and economic institutions and structures and the choices that were made within those institutions. They support this argument by using institutional explanation, such as growth strategy, market liberalization, and political development.