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Arms Race, Military Expenditure and Economic Growth in India

By Na Hou


This thesis aims to study the causes and effects of military expenditure on economic growth in India. Three aspects of this subject are concentrated which link well with the core stylised facts of the Indian defence effort and its developmental problems: the 'security dilemma' in terms of its relationship with its neighbour, Pakistan; the core factors that motivate the demand for defence; the economic impact of militarization and the effect of defence on development. First, the arms race between India and Pakistan is analyzed by using a Richardson action-reaction model and cointegration techniques. The empirical results provide robust evidence to support the existence of an enduring arms race between India and Pakistan, even after taking into account a structural break. Second, the results indicate that India's military expenditure is mainly determined by income, political status, the perceived threat from Pakistan and the external wars both in the long-run and in the short-run. Third, the relationship between military expenditure and economic growth is studied in India and in a broader context, i.e. in a cross-sectional and panel data study of 36 developing countries. The significant and negative effect of defence on economic growth is confirmed in both cases

Topics: HB Economic Theory
Year: 2010
OAI identifier:

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