Soft Modeling of Military Expenditure, Income Inequality, and Profit Rate, 1988–2008

Abstract This paper investigates the nexus of military expenditure, income inequality, and profit rate, applying the non-parametric technique of Partial Least Squares Path Modeling (PLS-PM) to 21 countries for 1988–2008. The findings suggest that military expenditure has a positive effect on income inequality while income inequality has a positive impact on profit rate. In contrast, military expenditure has a (relatively small) positive effect on profit rate. However, these results change significantly once unobserved heterogeneity is considered. Accordingly, based on four segments, although the positive effect of income inequality on profit rate remains the same for each segment, for some segments, the effect of military expenditure on income inequality and profit rate become negative.