Military Spending Composition and Economic Growth

Abstract

ABSTRACT In the large literature on military spending and growth, the heterogeneity of the categories of expenditure is seldom considered. Military spending is used to pay for a variety of things, including salaries, large weapon systems, and physical infrastructure, along with ongoing operations, training, and readiness - each of which might be expected to have different implications for economic growth. One reason for the focus on aggregate spending is the lack of disaggregated cross-country data, but there are some data available from NATO and the EU that break military spending into personnel, equipment, infrastructure and other expenditures (primarily operations and maintenance). This paper uses these data, available for 34 countries, for as many as 49 years, to investigate whether the composition of military budgets affects economic growth. Estimating standard growth models with this data it finds that as expected there is considerable heterogeneity in the effects of the different components. Specifically, the negative correlation between military spending and growth found in recent studies is primarily driven by personnel expenditures, and - slightly less clearly - by operating expenditures.