This study reexamines the relationship between growth and defense spending in developing countries. It differs from previous studies as it recognizes differences in the borrowing capacity of each country. We hypothesize that a negative relationship will exist between defense and economic growth in countries which are financially resource constrained, and a positive relationship will exist in countries which are relatively resource unconstrained. A factor and discriminate analysis are used to group countries. The variables chosen for the factor analysis depict a country's external debt, structural condition, growth, and balance of payments position. Regression equations were estimated for the total sample and each group, with the growth in Gross Domestic Product as the dependent variable. The results confirm the hypothesized positive relationship between defense and growth in the unconstrained group, but was not confirmed for the constrained group. The results suggest the importance of variables such as foreign exchange, net inflows of capital, external debt, and the growth of the public sector in general, on economic growth.
In the last twenty years, there has been a growing interest in quantifying the 'guns versus butter' tradeoff facing developing countries. This article examines Pakistan's military expenditures between 1973 and 1986 and estimates ·both a short-run impact model and long-run adjustment model to measure how changes in the defense burden, the deficit, and government debt have affected budget allocations to economic services programs and administrative/social programs. In addition, we investigate whether defense budgets have been increased or maintained either at the expense of economic and social programs in general or merely confined to one or two specific programs. Military expenditure patterns are analyzed to see whether or not they were responsible for across-the-board cuts in long-term infrastructure programs. Our analysis indicates that the deficit, the debt service, and the military burden are often interrelated in such a compleic manner that the impact of any specific program is difficult to predict. In the short run, most infrastructure programs increased as the military burden declined. The opposite was generally true for social programs such as social security, welfare, and housing. Changes in the defense budget appear to have only a transitory effect on the share of government expenditures allocated toward infrastructure. The long-run model suggests that social programs have just as high a priority as economic services. When the military burden increases, the government is willing to take some resources from infrastructure programs and lets the deficit grow to finance social programs. Our results also suggest a long run pattern of adjustment in social programs but not infrastructure programsa counter-intuitive result given Pakistan's severe infrastructure constraints.
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