Arab-Israeli Defense Spending and Economic Growth

Abstract

Research on the nexus between defense spending and economic growth in the Third World has generated discrepant findings. This debate takes on added relevance in the wake of recent substantive moves toward peace in the Middle East. This study considers the relationship between defense spending and economic growth over time in the Middle East. It also addresses the externality effects defense spending has on the economies. Contextual factors such as aims production and regime type of Egypt, Israel, Jordan and Syria are put forth as possible explanations of the disparate findings to date. The findings suggest that the potential for peace dividends in Egypt and Syria is contingent upon increases in allocations to non-defense government spending. For Israel defense cuts alone may actually hinder growth in the short run. In Jordan, the defense sector is shown to be surprisingly productive and therefore any potential peace dividend must rely upon cooperative regional ventures, and not defense cuts.