Military Spending, Investment and Economic Growth in Small Industrialising Economies

An enduring and important debate in economics concerns the effects of military spending on economic growth. It has generated a huge literature, with a variety of results and no clear consensus. The end of the Cold War led to marked reductions in military burdens and to renewed concerns on whether this was likely to lead to a ‘peace dividend ’ or a ‘peace penalty’. This paper revisits the debate using a sample of small industrialising economies. It estimates a growth equation and an investment equation, where investment is a function of growth and military expenditure. The data is used to consider the individual economies and to provide some panel time-series results, which show some evidence of a negative impact of military spending on growth and investment.