A dynamic model of capital and arms accumulation

Heng-Fu Zou ()

No 80, CEMA Working Papers from China Economics and Management Academy, Central University of Finance and Economics

Abstract: How does competitive arms accumulation affect investment and capital accumulation? In a dynamic optimization framework including both investment and military spending, we find that, when the utility function is separable between consumption and the weapon stocks, an unanticipated rise in current military threat reduces current investment and an anticipated rise in future military threat stimulates current investment. But when the utility function is nonseparable between consumption and the weapon stocks, a current military threat may not decrease the short-run investment. In the long run, capital accumulation is independent of the military conflicts among countries regardless of the form of the utility function.

Keywords: Capital accumulation; Military spending; Economic growth; Arms race (search for similar items in EconPapers)
JEL-codes: E20 E22 H56 (search for similar items in EconPapers)
Pages: 23 pages
Date: 1995
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (23)

Published in Journal of Economic Dynamics and Control, Volume 19, Issues 1-2, January-February 1995, Pages 371-393

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Journal Article: A dynamic model of capital and arms accumulation (1995)
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