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Can we declare military Keynesianism dead?

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  • Luca Pieroni
  • Giorgio D’Agostino
  • Marco Lorusso

Abstract

This paper empirically tests the Keynesian hypothesis that government defence spending positively impacts on aggregate output, by using a long run equilibrium model for the US and the UK. Our contribution, with respect to previous works, is twofold. First, our inferences are adjusted for structural breaks exhibited by the data concerning fiscal and monetary variables. Second, we take into account different dynamics between defence spending on aggregate output, showing that the results are sensitive to sub-sample choices. Though the estimated elasticities in both countries show a lack of significance in the more recent years of the sample, defence spending priorities addressed to international security may revitalize pro-cyclical effects in the UK, by an industrial policy of defence shared with the EU members.

Suggested Citation

  • Luca Pieroni & Giorgio D’Agostino & Marco Lorusso, 2008. "Can we declare military Keynesianism dead?," Quaderni del Dipartimento di Economia, Finanza e Statistica 44/2008, Università di Perugia, Dipartimento Economia.
    • Handle: RePEc:pia:wpaper:44/2008
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    1. Ranjan Kumar Mohanty & Sidheswar Panda & Biswabhusan Bhuyan, 2020. "Does Defence Spending and its Composition Affect Economic Growth in India?," Margin: The Journal of Applied Economic Research, National Council of Applied Economic Research, vol. 14(1), pages 62-85, February.
    2. Giorgio d'Agostino & Luca Pieroni & J Paul Dunne, 2010. "Assessing the Effects of Military Expenditure on Growth," Working Papers 1012, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    3. J Paul Dunne, 2011. "Military Keynesianism: An Assessment," Working Papers 1106, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    4. Damiani, Mirella & Pompei, Fabrizio & Ricci, Andrea, 2011. "Temporary job protection and productivity growth in EU economies," MPRA Paper 29698, University Library of Munich, Germany.
    5. Alessandra Cepparulo & Paolo Pasimeni, 2024. "Defence Spending in the European Union," European Economy - Discussion Papers 199, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    6. Kyriakos Emmanouilidis, 2024. "Military Spending and Economic Output: A Decomposition Analysis of the US Military Budget," Defence and Peace Economics, Taylor & Francis Journals, vol. 35(2), pages 243-263, February.
    7. Garfinkel, Michelle R. & Skaperdas, Stergios (ed.), 2012. "The Oxford Handbook of the Economics of Peace and Conflict," OUP Catalogue, Oxford University Press, number 9780195392777.
    8. Silvia Micheli, 2010. "Learning Curve and Wind Power," Quaderni del Dipartimento di Economia, Finanza e Statistica 81/2010, Università di Perugia, Dipartimento Economia.
    9. Marco Lorusso & Luca Pieroni, 2019. "Disentangling Civilian and Military Spending Shocks: A Bayesian DSGE Approach for the US Economy," JRFM, MDPI, vol. 12(3), pages 1-41, September.
    10. Yang, Heewon & Hong, Chanyoung & Jung, Sungmoon & Lee, Jeong-Dong, 2015. "Arms or butter: The economic effect of an increase in military expenditure," Journal of Policy Modeling, Elsevier, vol. 37(4), pages 596-615.
    11. W. Robert J. Alexander, 2015. "The Keynesian IS-MR Model and Military Spending," Defence and Peace Economics, Taylor & Francis Journals, vol. 26(2), pages 213-221, April.
    12. Francesco Venturini, 2011. "Product variety, product quality, and evidence of Schumpeterian endogenous growth: a note," Quaderni del Dipartimento di Economia, Finanza e Statistica 93/2011, Università di Perugia, Dipartimento Economia.
    13. Stefano Herzel & Marco Nicolosi & Cătălin Stărică, 2012. "The cost of sustainability in optimal portfolio decisions," The European Journal of Finance, Taylor & Francis Journals, vol. 18(3-4), pages 333-349, May.
    14. 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.
    15. Manamperi, Nimantha, 2016. "Does military expenditure hinder economic growth? Evidence from Greece and Turkey," Journal of Policy Modeling, Elsevier, vol. 38(6), pages 1171-1193.
    16. Mirella Damiani, 2010. "Labour regulation, corporate governance and varieties of capitalism," Quaderni del Dipartimento di Economia, Finanza e Statistica 76/2010, Università di Perugia, Dipartimento Economia.
    17. Christos Kollias & Suzanna-Maria Paleologou, 2015. "Defence And Non-Defence Spending In The Usa: Stimuli To Economic Growth? Comparative Findings From A Semiparametric Approach," Bulletin of Economic Research, Wiley Blackwell, vol. 67(4), pages 359-370, October.
    18. Kollias, Christos & Paleologou, Suzanna-Maria, 2013. "Guns, highways and economic growth in the United States," Economic Modelling, Elsevier, vol. 30(C), pages 449-455.
    19. Eman Elish & Hossam Eldien Ahmed & Mostafa E. AboElsoud, 2023. "Military spending crowding out health and education spending: which views are valid in Egypt?," Palgrave Communications, Palgrave Macmillan, vol. 10(1), pages 1-9, December.
    20. Rukhsana Kalim & Muhammad Shahid Hassan, 2014. "Public Defense Spending and Poverty in Pakistan," Hacienda Pública Española / Review of Public Economics, IEF, vol. 211(4), pages 93-115, December.
    21. Davide Castellani & Fabio Pieri, 2011. "Foreign Investments and Productivity Evidence from European Regions," Quaderni del Dipartimento di Economia, Finanza e Statistica 83/2011, Università di Perugia, Dipartimento Economia.
    22. Matthews,Ron (ed.), 2019. "The Political Economy of Defence," Cambridge Books, Cambridge University Press, number 9781108424929, September.
    23. Kollias Christos & Paleologou Suzanna-Maria & Tzeremes Panayiotis, 2020. "Defence Spending and Unemployment in the USA: Disaggregated Analysis by Gender and Age Groups," Peace Economics, Peace Science, and Public Policy, De Gruyter, vol. 26(2), pages 1-13, May.

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    More about this item

    Keywords

    Military spending; Output; Long run models;
    All these keywords.

    JEL classification:

    • E12 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Keynes; Keynesian; Post-Keynesian; Modern Monetary Theory
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War

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