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‘GUNS OR BUTTER?’ REVISITED: ROBUSTNESS AND NONLINEARITY ISSUES IN THE DEFENSE–GROWTH NEXUS
Author(s) -
Cuaresma Jesús Crespo,
Reitschuler Gerhard
Publication year - 2006
Publication title -
scottish journal of political economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.4
H-Index - 46
eISSN - 1467-9485
pISSN - 0036-9292
DOI - 10.1111/j.1467-9485.2006.00393.x
Subject(s) - robustness (evolution) , economics , nexus (standard) , externality , econometrics , econometric model , macroeconomics , microeconomics , computer science , biochemistry , chemistry , gene , embedded system
The relationship between military expenditure and growth is studied taking into account potential nonlinearities and robustness issues in the specification of the econometric models used. Using cross‐country growth regressions and the widely used Feder–Ram model, the partial correlation between defense spending and economic growth appears robust and significantly negative only for countries with a relatively low military expenditure ratio. While the externality effect appears positive in this subgroup of countries, the overall effect turns negative due to the size effect of the military sector.