This paper investigates the empirical relationship between military spending and economic growth in a large panel of advanced
and developing countries over the period 1984–2014, with a particular focus on whether the growth impact of military expenditures
varies with the type and level of security threats. Although there is extensive literature on the military-growth nexus, there
is still no consensus on the nature and magnitude of this relationship. Using an expansive dataset and controlling for country-specific
effects and potential endogeneity, we revisit this issue and reach two firm conclusions: First, military spending has no statistically
significant direct (positive) effect on growth. Second, the nature and level of security threats do not alter the relationship
between military spending and growth. Overall, the empirical results documented in the study suggest that military spending
is simply not important or large enough in most countries to have a meaningful impact on growth.
JEL-Codes:C22 D74 H20 H56
Keywords:Military spending, Economic growth, Institutions, External and internal threats
Forschungsbereich:Makroökonomie und öffentliche Finanzen