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Does Military Expenditure Matter For Inflation And Economic Growth?

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  • Shin-Jen Tzeng
  • Ching-Chong Lai
  • Chun-Chieh Huang

Abstract

This paper sets up a monetary endogenous growth model, and uses it to explain the ambiguous linkage between the military burden and the inflation rate observed in existing empirical studies. It is found that an expansion in the military burden has an ambiguous effect on the inflation rate depending upon the relative extent of two conflicting forces. More specifically, if the increase in the marginal benefit from holding money exceeds (falls short of) the increase in the marginal product of private capital, the inflation rate will rise (fall) in response. Moreover, it is found that an increase in the military burden will stimulate the balanced growth rate, confirming Benoit's famous empirical findings.

Suggested Citation

  • Shin-Jen Tzeng & Ching-Chong Lai & Chun-Chieh Huang, 2008. "Does Military Expenditure Matter For Inflation And Economic Growth?," Defence and Peace Economics, Taylor & Francis Journals, vol. 19(6), pages 471-478.
    • Handle: RePEc:taf:defpea:v:19:y:2008:i:6:p:471-478
    DOI: 10.1080/14775080701606184
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    References listed on IDEAS

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    1. James Murdoch & Chung-Ron Pi & Todd Sandler, 1997. "The impact of defense and non-defense public spending on growth in Asia and Latin America," Defence and Peace Economics, Taylor & Francis Journals, vol. 8(2), pages 205-224.
    2. van der Ploeg, F & de Zeeuw, A J, 1990. "Perfect Equilibrium in a Model of Competitive Arms Accumulation," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 131-146, February.
    3. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287, January.
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    Cited by:

    1. Eydam, Ulrich & Leupold, Florian, 2024. "What is it good for? On the inflationary effects of military conflicts," International Economics, Elsevier, vol. 179(C).
    2. Hung-Pin Lin, 2012. "Does Defense Spending Surprise Long-Run Inflation, Economic Growth and Welfare?," Economics Bulletin, AccessEcon, vol. 32(1), pages 1020-1031.
    3. Lin Hung-Pin & Tsung-Li Wang & Cheng-Lang Yang, 2016. "Further Causality Evidence on Arms Race, Inflation and Economic Growth," ECONOMIC COMPUTATION AND ECONOMIC CYBERNETICS STUDIES AND RESEARCH, Faculty of Economic Cybernetics, Statistics and Informatics, vol. 50(2), pages 123-136.
    4. Salahodjaev, Raufhon, 2016. "Intelligence and defense spending: a cross-country evidence," MPRA Paper 70252, University Library of Munich, Germany.

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