One of the most important questions stemming from the end of the cold war is how reductions in defense spending will affect economic performance. This question has significant policy implications for countries facing public demands for defense cutbacks and countries still maintaining high levels of military spending for security. However, previous studies on the defense-growth relationship have reported mixed findings. Thus, this study investigates how the changes in defense burden will affect economic growth by testing the economic effects of defense spending on growth in 80 countries using a nonlinear defense-growth model that includes technological progress. The results reveal that two thirds of the countries under investigation may expect a “peace dividend” due to the negative relationship between defense spending and economic growth.
Recent increases in U.S. defense spending have renewed interest in the defense—growth nexus. The Feder-Ram—based models have traditionally been used in examining this relationship, but Dunn, Smith, and Willenbockel recommend the augmented Solow model because of several weaknesses inherent in the Feder-Ram model (including its static nature, simultaneity bias, and multicollinearity issues). The augmented Solow model addresses these issues, but it has weaknesses too. Thus, by employing both the Feder-Ram and augmented Solow models, the author tests the defense—growth nexus in the United States for 1954 through 2005. The results indicate that defense spending does not significantly affect the U.S. economy.
There have been debates on how political corruption may affect foreign direct investment (FDI) attractiveness. Some scholars argue that corruption increases economic uncertainty due to arbitrariness and thereby affects FDI negatively. On the other hand, another group of scholars contends that corruption leads to greater FDI because it can create a business environment that is more friendly to foreign investors. In this article, we empirically test the relationship between the level of corruption and FDI attractiveness in eight non‐OECD (Organisation for Economic Co‐operation and Development) Asian countries (Bangladesh, India, Indonesia, Malaysia, Pakistan, Philippines, Sri Lanka, and Thailand) using data for the perceived corruption level (according to the International Country Risk Guide data set) available from Political Risk Services, a private international investment risk service company, for 1984–2004. The analysis reveals that corruption in non‐OECD countries in Asia generally harms FDI attractiveness.
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