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Military Threats and Growth: A Small Open Stochastic Growth Model

Author

Listed:
  • Cheng-Te Lee

    (Department of International Trade, Chinese Culture University, Taiwan)

  • Po-Sheng Lin

    (Department of International Business, National Chengchi University, Taiwan)

Abstract

This paper sets up a small open stochastic endogenous growth model to analyze the impact of foreign military threats on the home long-run economic growth rate and welfare. We prove that, in addition to the intertemporal substitution elasticity in consumption, whether the home country is a net creditor or not is also an important factor in determining the growth effect and the welfare effect of foreign military threats. We find that if the home country is a net creditor, the relationship between foreign military threats and the home long-run economic growth rate is positive. On the contrary, if the home country is a net debtor, the effect of foreign military threats on the home long-run economic growth rate is negative.

Suggested Citation

  • Cheng-Te Lee & Po-Sheng Lin, 2012. "Military Threats and Growth: A Small Open Stochastic Growth Model," Journal of Economics and Management, College of Business, Feng Chia University, Taiwan, vol. 8(2), pages 259-282, July.
    • Handle: RePEc:jec:journl:v:8:y:2012:i:2:p:259-282
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    Citations

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    Cited by:

    1. Shin-Chyang Lee & Cheng-Te Lee & Shang-Fen Wu, 2016. "Military spending and growth: a small open economy stochastic growth model," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(1), pages 105-116, February.

    More about this item

    Keywords

    small open economy; military threats; stochastic endogenous growth;
    All these keywords.

    JEL classification:

    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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