Military Expenditure and Economic Growth in Greece, 1960-90

Abstract

There is much controversy in the literature over whether military expenditure is associated with higher or lower growth rates. Most studies on the subject utilize cross-sectional data, and the diversity in their conclusions is attributed mainly to sample variations and differences in the specificational choices and time periods examined. Moreover, to the extent that various regions of the world differ substantially in the natural environments they face and in socioeconomic structures, it is inappropriate to generalize the effects of military expenditure across countries. These facts point to the need for case-specific studies using time-series data for individual countries. In this context, the present article seeks to contribute to current research in the area by investigating the growth effects of military expenditure in the case of Greece over the post-war period. Basically, military expenditure can affect economic growth through both direct and indirect spin-offs, the reallocation of resources and the creation of new resources. Those influences can be captured by a simultaneous equation model comprising three equations, namely growth, savings and military burden. In the context of the general-to-specific approach, the estimation of this model for the Greek economy over the period 1960-90, reveals that the combined effect of military expenditure on the output growth rate is negative, independently of the level of significance used in calculating of the relevant multiplier.