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Military spending, armed conflict and economic growth in developing countries in the post-Cold War era

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  • Nusrate Aziz
  • M. Niaz Asadullah

Abstract

Purpose - While the relationship between military expenditure and economic growth during the Cold War period is well-researched, relatively less is known on the issue for the post-Cold War era. Equally how the relationship varies with respect to exposure to conflict is also not fully examined. Therefore, the purpose of this paper is to investigate the causal impact of military expenditure on growth in the presence of internal and external threats for the period 1990-2013 using data from 70 developing countries. Design/methodology/approach - The main estimates are based on the generalized method of moments (GMM) regression model. But for comparison purposes, the authors also report estimates using fixed and random effects as well as pooled cross-section regressions. The regression specification accounts for non-linear effect of military expenditure allowing for interaction with conflict variable (where distinction is made between external and internal conflict). Findings - The analysis indicates that methods as well as model specification matter in studying the effect of military spending on growth. Full sample estimates based on GMM, fixed, and random effects models suggest a negative and statistically significant effect of military expenditure. However, fixed effects estimate becomes insignificant for low-income countries. The effect of military spending is also insignificant in the cross-sectional OLS model if conflict is not considered. When the regression model additionally controls for conflict, the effect of military spending conditional upon (internal) conflict exposure is significant and positive. No such effect is present conditional upon external threat. Research limitations/implications - One important limitation of the analysis is the small sample size – the authors had to restrict analysis to 70 low and middle-income countries for which the authors could construct post-Cold War panel data on military expenditure along with information on armed conflict exposure (the later from the Uppsala Conflict Data Program, 2015). Originality/value - To the best of the author’s knowledge, this is the first paper to examine the joint impact of military expenditure and conflict on economic growth in post-Cold War period in a sample of developing countries. Moreover, an attempt is made to review and revisit the large Cold War literature where studies vary considerably in terms findings. A key reason for this is the somewhat ad hoc choice of econometric methods – most rely on cross-section data and rarely conduct sensitivity analysis. The authors instead rely on panel data estimates but also report results based on naïve models for comparison purposes.

Suggested Citation

  • Nusrate Aziz & M. Niaz Asadullah, 2017. "Military spending, armed conflict and economic growth in developing countries in the post-Cold War era," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 44(1), pages 47-68, January.
  • Handle: RePEc:eme:jespps:jes-01-2015-0021
    DOI: 10.1108/JES-01-2015-0021
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    References listed on IDEAS

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    3. Ullah, Assad & Zhao, Xinshun & Kamal, Muhammad Abdul & Zheng, JiaJia, 2020. "Modeling the relationship between military spending and stock market development (a) symmetrically in China: An empirical analysis via the NARDL approach," Physica A: Statistical Mechanics and its Applications, Elsevier, vol. 554(C).
    4. Ahad, Muhammad & Dar, Adeel Ahmad, 2017. "Modeling the Asymmetric Impact of Defense Spending on Economic Growth: An Evidence from Nonlinear ARDL and Multipliers," MPRA Paper 80085, University Library of Munich, Germany, revised 2017.
    5. Stamegna, Marco & Bonaiuti, Chiara & Maranzano, Paolo & Pianta, Mario, 2024. "The economic impact of arms spending in Germany, Italy, and Spain," MPRA Paper 120608, University Library of Munich, Germany.
    6. Kyriakos Emmanouilidis & Christos Karpetis, 2022. "Cross–Country Dependence, Heterogeneity and the Growth Effects of Military Spending," Defence and Peace Economics, Taylor & Francis Journals, vol. 33(7), pages 842-856, October.
    7. Ko, Jeremy & Lee, Harry F. & Leung, Chun Kai, 2024. "War and warming: The effects of climate change on military conflicts in developing countries (1995–2020)," Innovation and Green Development, Elsevier, vol. 3(4).
    8. Dmitry Alexandrovich REPNIKOV, 2024. "Defense Expenditures and GDP Growth Rates in the World: Determinants and Interrelationships," Russian Foreign Economic Journal, Russian Foreign Trade Academy Ministry of economic development of the Russian Federation, issue 5, pages 48-58, May.
    9. Nusrate Aziz & Usman Khalid, 2019. "Armed Conflict, Military Expenses and FDI Inflow to Developing Countries," Defence and Peace Economics, Taylor & Francis Journals, vol. 30(2), pages 238-251, February.
    10. Sampson Agyapong Atuahene & Kong Yusheng & Geoffrey Bentum-Micah & Evans Garti & Alexender Baah, 2020. "Military Expenditure and Economic Growth in China," International Journal of Finance, Insurance and Risk Management, International Journal of Finance, Insurance and Risk Management, vol. 10(2), pages 3-16.
    11. Luqman Saeed, 2025. "The Impact of Military Expenditures on Economic Growth: A New Instrumental Variables Approach," Defence and Peace Economics, Taylor & Francis Journals, vol. 36(1), pages 86-101, January.
    12. Christos Kollias & Suzanna-Maria Paleologou, 2019. "Military spending, economic growth and investment: a disaggregated analysis by income group," Empirical Economics, Springer, vol. 56(3), pages 935-958, March.
    13. Usman Khalid & Luke Emeka Okafor & Nusrate Aziz, 2020. "Armed conflict, military expenditure and international tourism," Tourism Economics, , vol. 26(4), pages 555-577, June.
    14. Luke Emeka Okafor & Usman Khalid, 2021. "Regaining international tourism attractiveness after an armed conflict: the role of security spending," Current Issues in Tourism, Taylor & Francis Journals, vol. 24(3), pages 385-402, February.
    15. Abdul Rehman & Hengyun Ma & Rafael Alvarado & Fayyaz Ahmad, 2023. "The nexus of military, final consumption expenditures, total reserves, and economic development of Pakistan," Economic Change and Restructuring, Springer, vol. 56(3), pages 1753-1776, June.
    16. Yanyan, Fu & Dong, Xitao, 2024. "Exploring the influence of internal and external conflicts on the resource curse hypothesis in OECD countries," Resources Policy, Elsevier, vol. 88(C).
    17. Khaldoon A. Mourad & Helen Avery, 2019. "The Sustainability of Post-Conflict Development: The Case of Algeria," Sustainability, MDPI, vol. 11(11), pages 1-18, May.
    18. Shreesh Chary, 2023. "The nexus between arms imports, military expenditures and economic growth of the top arms importers in the world: a pooled mean group approach," Journal of Economic Studies, Emerald Group Publishing Limited, vol. 51(4), pages 808-822, August.

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    More about this item

    Keywords

    Economic growth; Internal and external armed conflict; Military expenditure; O11; H56;
    All these keywords.

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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