CREDIT 16/03: Military spending, armed conflict and economic growth in developing countries in the post-cold war era

Abstract

This paper re-examines 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. We find that differences in methods, model specifications, and the underlying estimation sample partly explain why past studies have differed in terms of the true effect of military spending. Estimates based on both cross-sectional and panel methods indicate that military expenditure negatively affects economic growth during the post-Cold War era. However, the effect is insignificant in the cross-sectional OLS method and fixed effects model for the full sample and the low-income country sub-sample, respectively. Moreover, the effect of military spending on growth conditional upon conflict exposure is positive and significant across all specifications, albeit the result is specific to internal instead of external conflict.

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Authors

M Nusrate Aziz and M Niaz Asadullah

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