Military Threats and Growth: A Small Open Stochastic Growth Model

Cheng-Te Lee () and Po-Sheng Lin
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Cheng-Te Lee: Department of International Trade, Chinese Culture University, Taiwan
Po-Sheng Lin: Department of International Business, National Chengchi University, Taiwan

Journal of Economics and Management, 2012, vol. 8, issue 2, 259-282

Abstract: This paper sets up a small open stochastic endogenous growth model to analyze the impact of foreign military threats on the home long-run economic growth rate and welfare. We prove that, in addition to the intertemporal substitution elasticity in consumption, whether the home country is a net creditor or not is also an important factor in determining the growth effect and the welfare effect of foreign military threats. We find that if the home country is a net creditor, the relationship between foreign military threats and the home long-run economic growth rate is positive. On the contrary, if the home country is a net debtor, the effect of foreign military threats on the home long-run economic growth rate is negative.

Keywords: small open economy; military threats; stochastic endogenous growth (search for similar items in EconPapers)
JEL-codes: F41 H56 O40 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (1)

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