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The Peace Dividend; Military Spending Cuts and Economic Growth

Malcolm D. Knight, Delano Villanueva () and Norman Loayza ()

No 1995/053, IMF Working Papers from International Monetary Fund

Abstract: Although conventional wisdom suggests that reducing military spending may improve a country’s economic growth performance, empirical studies have produced ambiguous results. This paper extends a standard growth model and estimates it using techniques that exploit both cross-section and time-series dimensions of available data to obtain consistent estimates of the growth-retarding effects of military spending via its adverse impact on capital formation and resource allocation. Model simulations suggest that a substantial long-run “Peace Dividend”--in the form of higher capacity output--may result from: (i) markedly lower military expenditure levels achieved in most regions during the late 1980s; and (ii) further military spending cuts that would be possible in the future if a global peace could be secured.

Pages: 40
Date: 1995-05-01
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Journal Article: The Peace Dividend: Military Spending Cuts and Economic Growth (1996) Downloads
Working Paper: The peace dividend: military spending cuts and economic growth (1996) Downloads
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