Can We Have More Butter and Guns Simultaneously? An Endogeneity Perspective
More details
Hide details
Faculty of Economic Sciences, University of Warsaw, Poland
Jacek Lewkowicz   

Faculty of Economic Sciences, University of Warsaw, Poland
Submission date: 2022-12-27
Final revision date: 2023-04-30
Acceptance date: 2023-06-12
Publication date: 2023-06-30
GNPJE 2023;314(2):28–46
Drivers and outcomes of military expenditures are an important topic in geopolitics and public debate. It is often argued that increases in the military budget can boost the economy through extended military equipment production. What should then be noticeable is a feedback relationship between military expenditures and the current state of the economy. This paper investigates this reverse relationship at the macro level using an unbalanced panel dataset of 173 countries over the period 1949–2020. Our empirical analysis implies that the claimed positive feedback loop between military expenditures and economic growth is either completely absent or, at most, very weak.
Albalate D., Bel G., Elias F. [2012], Institutional determinants of military spending, Journal of Comparative Economics, 40 (2): 279–290.
Alley J. [2021], Alliance Participation, Treaty Depth, and Military Spending, International Studies Quarterly, 65 (4): 929–943.
Anderson T. W., Hsiao C. [1982], Formulation and Estimation of Dynamic Models Using Panel Data, Journal of Econometrics, 18: 67–82.
Arellano M., Bond S. R. [1991], Some Specification Tests for Panel Data: Monte Carlo Evidence and an Application to Employment Equations, Review of Economic Studies, 58: 43–77.
Arellano M., Bover O. [1995], Another Look at the Instrumental Variables Estimation of Error-Component Models, Journal of Econometrics, 68: 29–51.
Baltagi B. H. [2013], Econometric Analysis of Panel Data, Fifth Edition, Wiley.
Baltagi B. H., Levin D. [1986], Estimating Dynamic Demand for Cigarettes Using Panel Data: The Effects of Bootlegging, Taxation, and Advertising Reconsidered, Review of Economics and Statistics, 68: 148–155.
Barro R. J. [1998], Determinants of Economic Growth: A Cross-Country Empirical Study, The MIT Press.
Batchelor P., Dunne P., Lamb G. [2002], The Demand for Military Spending in South Africa, Journal of Peace Research, 39 (3): 339–354.
Beliakova P., Perlo-Freeman S. [2018], Corruption in the Russian Defense Sector, World Peace Foundation, 5: 1–21.
Biddle S., Long S. [2004], Democracy and Military Effectiveness: A Deeper Look, Jorunal of Conflict Resolution, 48 (4): 525–546.
Blundell R., Bond S. [1998], Initial Conditions and Moment Restrictions in Dynamic Panel Data Models, Journal of Econometrics, 87: 115–144.
Borch C., Wallace M. [2010], Military Spending and Economic Well-Being in the American States: The Post-Vietnam War Era, Social Forces, 88 (4): 1727–1752.
Bove V., Brauner J. [2016], The demand for military expenditure in authoritarian regimes, Defence and Peace Economics, 27 (5): 609–625.
Bove V., Efthyvoulou G., Navas A. [2017], Political cycles in public expenditure: butter vs guns, Journal of Comparative Economics, 45 (3): 582–604.
Bove V., Elia L. [2014], The impact of American and British involvement in Afghanistan and Iraq on health spending, military spending and economic growth, The B. E. Journal of Macroeconomics, 14 (1): 325–339.
Brauner J. [2015], Military spending and democracy, Defence and Peace Economics, 26 (4): 409–423.
Brueckner J. [2003], Strategic interaction among governments: An overview of empirical studies, International Regional Science Review, 26 (2): 175–188.
Cappelen A., Gleditsch N. P., Bjerkholt O. [1984], Military Spending and Economic Growth in the OECD Countries, Journal of Peace Research, 21 (4): 361–373.
Cavicchioli M., Pistoresi B. [2016], Testing threshold cointegration in Wagner’s Law: The role of military spending, Economic Modelling, 59: 23–31.
Chang T., Lee Ch. Ch., Hung K., Lee H. K. [2014], Does Military Spending Really Matter for Economic Growth in China and G7 Countries: The Roles of Dependency and Heterogeneity, Defence and Peace Economics, 25 (2): 177–191.
Clements B. J., Gupta S., Khamidova S. [2021], Is military spending converging to a low level across countries?, Economic Modelling, 94: 433–441.
Compton R. A., Paterson B. [2016], Military Spending and Growth: The Role of Institutions, Defence and Peace Economics, 27 (3): 301–322.
Coppedge M., Gerring J., Knutsen C. H., Lindberg S. I., Teorell J., Alizada N., Altman D., Bernhard M., Cornell A., Fish M. S., Gastaldi L., Gjerløw H., Glynn A., Hicken A., Hindle G., Ilchenko N., Krusell J., Lührmann A., Maerz S. F., Marquardt K. L., McMann K., Mechkova V., Medzihorsky J., Paxton P., Pemstein D., Pernes J., Römer J. von, Seim B., Sigman R., Skaaning S. V., Staton J., Sundström A., Tzelgov E., Wang Y., Wig T., Wilson S., Ziblatt D. [2021], V–Dem [Country – Year/Country – Date] Dataset v11.1, Varieties of Democracy.
Deger S., Sen S. [1991], Military Expenditure, Aid, and Economic Development, The World Bank Economic Review, 5 (issue suppl. 1): 159–186.
Desli E., Gkolgkoutsika A. [2021], Military spending and economic growth: a panel data investigation, Economic Change and Restructuring, 54: 781–806.
Desli E., Gkolgkoutsika A., Katrakilidis C. [2017], Investigating the Dynamic Interaction between Military Spending and Economic Growth, Review of Development Economics, 21 (3): 511–526.
Dimitrakis P. [2009], The Value to CENTO of UK Bases on Cyprus, Middle Eastern Studies, 45 (4): 611–624.
Dizaji S. F. [2019], Trade openness, political institutions, and military spending (evidence from lifting Iran’s sanctions), Empirical Economics, 57: 2013–2041.
Dizaji S. F., Farzanegan M. R. [2021], Do Sanctions Constrain Military Spending of Iran?, Defence and Peace Economics, 32 (2): 125–150.
Douch M., Solomon B. [2014], Middle Powers And The Demand For Military Expenditures, Defence and Peace Economics, 25(6): 605-618.
Dudley L., Montmarquette C. [1981], The demand for military expenditures: An international comparison, Public Choice, 37: 5–31.
Dunne J. P. [2012], Military Spending, Growth, Development And Conflict, Defence and Peace Economics 23 (6): 549–557.
Dunne P., Nikolaidou E. [2001], Military expenditure and economic growth: A demand and supply model for Greece, 1960–96, Defence and Peace Economics, 12 (1): 47–67.
Dunne J. P., Perlo-Freeman S., Smith R. P. [2008], The demand for military expenditure in developing countries: hostility versus capability, Defence and Peace Economics, 19 (4): 293–302.
Dunne J. P., Vougas D. [1999], Military Spending and Economic Growth in South Africa: A Causal Analysis, Journal of Conflict Resolution, 43 (4): 521–537.
d’Agostino G., Dunne J. P., Lorusso M., Pieroni L. [2020], Military Spending, Corruption, Persistence and Long Run Growth, Defence and Peace Economics, 31 (4): 423–433.
d’Agostino G., Dunne J. P., Pieroni L. [2017], Does Military Spending Matter for Long-run Growth?, Defence and Peace Economics, 28 (4): 429–436.
Farzanegan M. R. [2014], Military Spending and Economic Growth: The Case of Iran, Defence and Peace Economics, 25 (3): 247–269.
Farzanegan M. R. [2018], The Impact of Oil Rents on Military Spending in the GCC Region: Does Corruption Matter?, Journal of Arabian Studies, 8 (issue suppl. 1): 87–109.
George J., Sandler T. [2018], Demand for military spending in NATO, 1968–2015: A spatial panel approach, European Journal of Political Economy, 53: 222–236.
Gleditsch N. P. [1992], Defense without Threat? The Future of Norwegian Military Spending, Cooperation and Conflict, 27 (4): 397–413.
Gupta S., Mello L. de, Sharan R. [2001], Corruption and military spending, European Journal of Political Economy, 17 (4): 749–777.
Hayo B., Neumeier F. [2012], Leaders’ Impact on Public Spending Priorities: The Case of the German Laender, Kyklos, 65 (4): 480–511.
Henderson E. A. [1998], Military Spending and Poverty, Journal of Politics, 60 (2).
Henke M., Maher R. [2021], The populist challenge to European defense, Journal of European Public Policy, 28 (3): 389–406.
Holman M. R. [2014], Sex and the City: Female Leaders and Spending on Social Welfare Programs in U. S. Municipalities, Journal of Urban Affairs, 36 (4): 701–715.
Hooker M. A., Knetter M. M. [1997], The Effects of Military Spending on Economic Activity: Evidence from State Procurement Spending, Journal of Money, Credit and Banking, 29 (3): 400–421.
Hwang S. H. [2012], Technology of military conflict, military spending, and war, Journal of Public Economics, 96 (1–2): 226–236.
Kollias Ch., Paleologou S. M. [2019], Military spending, economic growth and investment: a disaggregated analysis by income group, Empirical Economics, 56: 935–958.
Kuehn D., Trinkunas H. [2017], Conditions of military contestation in populist Latin America, Democratization, 24 (5): 859–880.
Leon G. [2014], Strategic redistribution: The political economy of populism in Latin America, European Journal of Political Economy, 34: 39–51.
Lskavyan V. [2011], Democracy levels and the income – military expenditure relationship, Applied Economics Letters, 18 (15): 1485–1489.
Lührmann A., Düpont N., Higashijima M., Kavasoglu Y. B., Marquardt K. L., Bernhard M., Döring H., Hicken A., Laebens M., Lindberg S. I., Medzihorsky J., Neundorf A., Reuter O. J., Ruth-Lovell S., Weghorst K. R., Wiesehomeier N., Wright J., Alizada N., Bederke P., Gastaldi L., Grahn S., Hindle G., Ilchenko N., Römer J. von, Wilson D., Pemstein D., Seim B. [2020], Varieties of Party Identity and Organization (V-Party) Dataset V1, Varieties of Democracy (V–Dem) Project.
Mavisakalyan A. [2014], Women in cabinet and public health spending: evidence across countries, Economics of Governance, 15: 281–304.
McNamara R. S. [1991], The Post-Cold War World: Implications for Military Expenditure in the Developing Countries, The World Bank Economic Review, 5 (issue suppl. 1): 95–126.
Mercille J. [2018], Mind the Gap: Security ‘Crises’ and the Geopolitics of US Military Spending, Geopolitics, 13 (1): 54–72.
Miyamoto W., Nguyen T. L., Sheremirov V. [2019], The effects of government spending on real exchange rates: Evidence from military spending panel data, Journal of International Economics, 116: 144–157.
Moore M. [2010], Arming the Embargoed: A Supply-Side Understanding of Arms Embargo Violations, Journal of Conflict Resolution, 54 (4): 593–615.
Mylonidis N. [2008], Revisiting the Nexus between Military Spending and Growth in the European Union, Defence and Peace Economics, 19 (4): 265–272.
Nincic M., Cusack T. R. [1979], The Political Economy of US Military Spending, Journal of Peace Research, 16 (2): 101–115.
Pan Ch. I., Chang T., Wolde-Rufael Y. [2015], Military Spending and Economic Growth in the Middle East Countries: Bootstrap Panel Causality Test, Defence and Peace Economics, 26 (4): 443–456.
Phillips B. J. [2015], Civil war, spillover and neighbors’ military spending, Conflict Management and Peace Science, 32 (4): 425–442.
Ringsmose J. [2009], Paying for Protection: Denmark’s Military Expenditure during the Cold War, Cooperation and Conflict, 44 (1): 73–97.
Thies W. J. [1987], Alliances and Collective Goods: A Reappraisal, Journal of Conflict Resolution, 31 (2): 298–332.
Veebel V. [2020], Precision Sanctions: Is Moscow in Trouble Because of Targeted Sanctions? A Deeper Glance at the Progress of the Russian Military Sector Over the Past Decade, The Journal of Slavic Military Studies, 33 (3): 335–354.
Ward M. D., Davis D. R. [1992], Sizing up the Peace Dividend: Economic Growth and Military Spending in the United States, 1948–1996, American Political Science Review, 86 (3): 748–755.
Wenzelburger G., Böller F. [2020], Bomb or build? How party ideologies affect the balance of foreign aid and defence spending, The British Journal of Politics and International Relations, 22 (1): 3–23.
Whitten G. D., Williams L. K. [2011], Buttery Guns and Welfare Hawks: The Politics of Defense Spending in Advanced Industrial Democracies, American Journal of Political Science, 55 (1): 117–134.
Wijeweera A., Webb M. J. [2009], Military Spending and Economic Growth in Sri Lanka: a Time Series Analysis, Defence and Peace Economics, 20 (6): 499–508.
Wooldridge J. F. [2010], Econometric Analysis of Cross Section and Panel Data, Second Edition, MIT Press.
Yakovlev V. [2007], Arms Trade, Military Spending, and Economic Growth, Defence and Peace Economics, 18 (4): 317–338.
Yesilyurt M. E., Elhorst P. [2017], Impacts of neighboring countries on military expenditures: A dynamic spatial panel approach, Journal of Peace Research, 54 (6): 777–790.
Yildrim J., Sezgin S. [2005], Democracy and Military Expenditure: A Cross-Country Evidence, Transition Studies Review, 12: 93–100.
Zhao L., Zhao L., Chen B. F. [2017], The interrelationship between defence spending, public expenditures and economic growth: evidence from China, Defence and Peace Economics, 28 (6): 703–718.
Zielinski R. C., Fordham B. O., Schilde K. E. [2017], What goes up, must come down? The asymmetric effects of economic growth and international threat on military spending, Journal of Peace Research, 54 (6): 791–805.