Wen-ya Chang

The impact of military burden on long-run growth and welfare

Abstract This paper presents an endogenous growth model to examine how a governments resource allocation between the defense and non-defense sectors will govern both economic growth and social welfare. We demonstrate that there exists an optimal defense expenditure share that maximizes the economic growth rate, but this rate is smaller than the welfare-maximizing share. This result can be viewed as a possible vehicle to explain why in many developing countries arms limitation and disarmament negotiations usually have low performance (even failing).

Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis

This paper develops an endogenous growth model to examine the linkage between military expenditures and economic growth. We adopt the modeling strategy where both the supply side and the demand side effects of national defense are taken into considerations. Our result finds that a rise in military spending tends to stimulate the sustained growth rate, confirming Benoits famous empirical findings.

Government spending, endogenous labor, and capital accumulation

Following Turnovsky and Fisher (1995) Journal of Economic Dynamics and Control 19, 747–786, we reexamine the dynamic responses of the capital stock to an unanticipated temporary increase in government consumption and infrastructure expenditures. The key factors determining capital accumulation are endogenous labor, the duration of policy expansion, and the relationship between private decisions and the composition of public expenditure. Given that private decisions and public consumption are Edgeworth independent, if employment is variable, investment increases with the duration of fiscal expansion. Following a temporary public infrastructure expansion, there always exists the possibility of a decrease in investment before the fiscal reversion under fixed employment. However, a temporary public infrastructure expansion under variable employment leads to a likely increase in investment before the fiscal reversion.

Addictive behavior and endogenous growth

This paper sets up an endogenous-growth model in which the consumers preference is subject to habitual consumption, and examines how consumption habits will govern the rate of sustained growth. It is found that the habitual behavior may be either growth-enhancingor growth-reducing, depending upon whether the substitution between intertemporal consumption is inelastic and whether the consumption experience is harmful or beneficial to the agents. It is also found, given that the elasticity of intertemporal substitution is less than unity, that the learning speed of consumption habits has a positive (negative) impact on the balanced-growth rate if the consumption experience is harmful (beneficial) to the agents.

Anticipated Inflation in a Monetary Economy with Endogenous Growth

This paper makes a new attempt to investigate the role of anticipated monetary growth in economic growth. Combining the Barro (1990)-Rebelo (1991)-type endogenous growth model with Sidrauskis (1967) framework, we show that the pre-announcement of money supply behaviour may have significant effects on the rate of growth during the transition process. The key factor in determining adjustment patterns of the economy to anticipated monetary changes is the degree of relative risk aversion. However, changes in the rate of monetary growth do not affect the rate of long-run growth regardless of the degree of relative risk aversion.

Effects of Anticipated Foreign Military Threat on Arms Accumulation

The literature of competitive arms accumulation based on the intertemporal optimization model has in recent years received considerable attention. For example, some models study the strategic aspects of arms accumulation in a dynamic game [1; 11; 6; 14; 15], others examine the economic effect of consumption, military spending, and arms accumulation in the presence of a foreign threat [5; 6]. However, these studies focus their attention on the stability, the steady-state effect, and the short-run adjustment of military spending and the domestic arms stock following an unanticipated permanent rise in the foreign military threat.2 It seems that very few efforts have been made to analyze the effects of an anticipated foreign military threat on the defense spending and home weapon stock. As a consequence, the first purpose of this paper is to contribute to the literature of competitive arms accumulation through examining the impact of an anticipated foreign threat. There are several examples motivated for such a study. The Middle East is a case in point. Kuwait and Saudi Arabia face the anticipated military threat from Iraq since the outbreak of the Gulf War in 1991. Recently, the peace talk between Israel and Arabs is often held, which makes their people anticipate that the enmity between both sides may be lessened and that the military conflicts in the Middle East may be lowered in the future. The South Asia is another case in point. As India insists on developing their nuclear weapons, the public in Pakistan anticipate that the military threat will be increased and hence will engage in an arms race action. Most studies on military spending use two alternative specifications in the utility function. Brito [1], Simaan and Cruz [11], Deger and Sen [5; 6] assume that the utility function is nonsepara-

AN ENDOGENOUS GROWTH MODEL OF CAPITAL AND ARMS ACCUMULATION

This paper attempts to examine the effect of an anticipated foreign military threat on the steady‐state growth rate and the transitional behavior of the economy. The modeling strategy follows the Sandler and Hartley (1995) and Dunne et al. (2005) viewpoints to emphasize the role of national defense in affecting growth from the perspective of both the demand and the supply sides. We thus combine the public capital version of endogenous growth with a framework of competitive arms accumulation. It is found that the key factor determining the steady state and the transitional effects of a rise in the foreign military threat on the home weapon–capital ratio, the consumption–capital ratio, and the rate of economic growth, is the degree of relative risk aversion.

Examining the long-run effect of money on economic growth: an alternative view

This paper proposes an alternative view of Wang and Yips (1992a) model to allow for real money balances as an input into human capital production. It is found that the validity of Wang and Yips (1992a) finding on the superneutrality of money with respect to economic growth crucially depends on whether the circulation of money could facilitate the efficiency in human capital accumulation or not. If money enhances the efficiency in human capital accumulation, then a negative relationship between inflation and long-run growth is established.

Anticipated foreign military threat, arms accumulation, and the current account in a small open economy

This paper examines the effects of an anticipated foreign military threat on consumption, the home weapons stock, and net foreign asset position in a small open economy. If the utility function is separable between butter and guns, the economy decreases both butter and guns when the news arrives, accumulates foreign assets prior to the foreign threat realization, and increases guns as the foreign threat realizes. If the utility function is nonseparable between butter and guns, the economy may have two dynamic responses. The first is similar to the separable case, except that consumption exhibits a discrete jump when the foreign threat realizes. The second is that the economy increases both butter and guns on impact, decumulates foreign assets prior to the foreign threat implementation, but either increases or decreases guns as the foreign threat realizes.

The Specification of Money Demand, Fiscal Policy, and Exchange Rate Dynamics

Abstract This paper incorporates the Holmes and Smyth (1972) specification, that is, the transactions demand for money should depend on consumer expenditure rather than national income, into the Dornbusch (1976) model. Based on such an amended model, we focus on how exchange rates adjust over time following an anticipated permanent increase in government spending. It is found that whether the domestic currency will depreciate or appreciate following a balanced-budget fiscal expansion is sensitive to plausible specification in the money demand function. In addition, it is also found that the misadjustment pattern of exchange rate can be observed in response to a balanced fiscal expansion, even if the system displays the saddlepoint stability rather than the global instability proposed by Aoki (1985).