Military expenditure and economic growth: A demand and supply model for Greece, 1960–96*

Abstract

This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960-1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.

Exports, domestic demand and economic growth in Ethiopia: Granger causality analysis

“…This is due to short run phenomenon of this type of expenditure, and hence, inability of such expenditure to create productive asset as its spillover effect would not be span to long run to drive the economy in the future. This finding is consistent with Dunne and Nikolaidou (1999) in case of Greece, Loto (20 II) in case ofNageria.…”

“…They found that government consumption spending is significantly and positively influences economic growth and proposed that government consumption spending is the cause and growth accelerating. Dunne and Nikolaidou (1999) investigated government spending and economic growth in Greece for the period .…”

Military Expenditures and Free-Riding in NATO

“…Their results suggest that Spain could have been free riding on NATO during this period. A model based on theory of the demand for military spending (see Dunne and Nikolaidou 2001;Dunne and Perlo-Freeman 2003a,b;Sezgin and Yildirim 2002) provides the basis for an investigation of the disparities (identified especially in the characteristics of the economic environment) in determinants influencing military expenditure.…”

The Demand for Turkish Defence Expenditure

“…Spill and threat variables are frequently lagged by one year when time series data are used, as a nation must experience the threat and spill before responding to it (Sandler and Hartley, 1995). Dunne and Nikolaidou (2001) estimated demand for Greek defence expenditure using a variation of the above model, which can be formulated as: ME ¼ f ðGDP; POP; NG; TB; SPILL; THREAT; WAR; POLÞ ð 1Þ…”

“…The defence burden of Greece (gr) is included in the analysis to determine if there is a rivalry between the defence spending of both countries. Following Dunne and Nikolaidou (2001), we used share of non-defence government spending (ng) representing the opportunity cost of defence. The sign for this variable is expected to be negative.…”