THE IMPACT OF DEFENCE SPENDING ON THE ECONOMIC GROWTH OF DEVELOPING COUNTRIES: A CROSS-SECTION STUDY

This study analyses the defence-growth relationship for 64 developing economies using cross-section data. It analyses the impact of military expenditure on economic growth with a demand and supply side model using simultaneous equation methodologies (2SLS and 3SLS). The empirical results, bearing in mind the possible inaccuracies of the data set and given the chosen model, suggest that defence spending has a negative impact on both the rate of economic growth and the savings-income ratio. Yet it also indicates that the effect is greater for middle-income nations which may have less to gain from defence sector spill-overs. The results also indicate that strategic factors, as much as economic constraints, determine defence spending in developing countries.