Military Spending, Government Disarray, and Economic Growth: A Cross-Country Empirical Analysis

Recent years have seen a spate of empirical studies that have used cross-country regressions to examine a variety of possible determinants of long-term economic growth. The present study considers an additional, largely overlooked, explanatory variable: military spending. Consistent with Thompson’s (1974) hypothesis that enhanced national defense fosters economic growth by increasing the security of property rights, the military expenditures share of GDP is found to have a statistically significant positive impact on the growth rate of per capita GDP. This result is obtained for two alternative model specifications, a Barro-regression and a LISREL variant of that regression. The LISREL variant is motivated by Sala-i-Martin’s (1994) claim that the impact of government economic policies jointly, rather than extant government policies individually and separately, is "the phenomenon that really matters" for long-term economic growth.