Military Keynesianism: An Assessment

The recent recession has seen something of resurgence in the debate over military Keynesianism. Recent commentators who should no better have claimed that it would make sense to stimulate the US economy through increases in military spending, as though this has not been a commonly contested view over the last 40 years. A large literature has debated the economic effects of military spending and while it has reached no consensus, there is also little support for any belief that military spending is a good way of stimulating the economy. This paper makes a contribution to the debate by assessing the theoretical perspectives and the empirical approaches used. It then undertakes an analysis of the US using a number of approaches and the results suggest that the simple Military Keynesian arguments still lack empirical support.Military Spending; economic growth; VAR; CVAR

Manufacturing Growth, Technological Progress, and Military Expenditure

During the Cold War a major justification of high levels of military spending was the ‘spin off’ of innovations to the civil sector, such as computers, which could then be exploited profitably and to the benefit of the economy and society. There is evidence that this has changed in more recent times, with the speed of consumer industry led technological change leading to ‘spin in’ to advanced weapons systems. If this is the case it has removed a major benefit of military spending. There is, however, little systematic evidence and little recent empirical work. This paper makes a contribution to the debate, analysing the impact of military spending on technological progress, and hence labour productivity and economic growth, for a number of major weapons producers. It uses data on the manufacturing sector, for the period 1966-2002 and estimates a CES production function in which military spending is assumed to effect growth through its impact on trend technological change.

The demand for Food in South Africa

Food consumption is an important issue in South Africa, not only in its relation to poverty and deprivation, but also given the importance of nutrition in allowing HIV/AIDS sufferers to lead extended, productive lives. With the pressing need to increase food security and the enormity of the epidemic, understanding the demand for food has become a vital task. It is important that the determinants of the demand for food are understood, so that responses of household food consumption to changes in the prices of foodstuffs, prices of other commodities, and total expenditure can be anticipated. There is, however, surprisingly little economic research on this topic. This paper provides an empirical analysis of the demand for food in South Africa for the years 1970 to 2002. It uses two modelling approaches, a general dynamic log-linear demand equation and a dynamic version of the almost ideal demand system to provide estimates of the short- and long-run price and expenditure demand elasticities.

Transformation or Stagnation? The South African Defence Industry in the early 21st Century

In post-Apartheid South Africa, the ANC Government faced the challenge of restructuring an unsustainably large defence sector. This was in the context of economic and social problems and a declining international arms market. This paper considers the restructuring of the South African industry over that period and more recently, providing a valuable case study of defence industrial restructuring in a small industrialised economy. It considers how the public sector (DENEL) and private sector responded to the cuts in defence spending and the impact of the Government’s decision to modernise the South African Defence Force through foreign procurement, the Strategic Defence Package (SDP) but with extensive offset deals. Within this context the prospects for the industry and the issues surrounding the privatisation of DENEL are considered. The SDP and its offset deals is seen to be continuing to have a considerable impact on the defence industry, but is of questionable value to the South African economy. While the defence projects seem to have some successes the experience of the non defence projects is poor and overall the value of the deals is nowhere near the promises made at the outset. Lack of transparency has created a environment where corruption was almost inevitable and successful industrial planning almost impossible. While there is still some way to go, the scepticism of offset programmes expressed by Brauer and Dunne (2004) seems to be justified by the experience of South Africa.South Africa; Defence; industry

Military Spending and Economic Growth in Greece, Portugal and Spain

Analysing the relationship between military spending and growth has been an important area of empirical research. Early studies focussed on large cross sections of countries, but criticisms of these led to a focus on case studies of individual countries and studies of groups of relatively homogeneous countries. Granger causality methods have also become common techniques for such analyses, both as single equation analyses and more recently, within a cointegrating VAR framework. This paper does two things. First it provides an empirical analysis of three of the EU’s poorest, peripheral economies, namely Greece, Portugal and Spain. It also considers the range of available Granger causality techniques and compares their results. It finds that the results differ across the methods used, indicating the problems with earlier studies, and across the countries, indicating the problems of drawing inferences across even relatively homogeneous economies.

Arms Trade Offsets and Development

Offsets, arrangements that obligate the arms seller to reinvest (“offset”) arms sales proceeds in the purchasing country, are an increasingly important facet of the international trade in arms. They are used to justify spending on imports by promises that there will be significant benefits to the economy, through the promotion and development of local industry, technology and employment. Until recently, however, there has been little research on how well offsets work in practice. This paper is a ‘state-of-the-art’ review of our empirical knowledge regarding arms trade offsets. We find virtually no case where offset arrangements have yielded unambiguous net benefits for a country’s economic development. As a general rule arms trade offset deals are more costly than ‘off-the-shelf’ arms purchases, create little by way of new or sustainable employment, do not appear to contribute in any substantive way to general economic development, and with very few exceptions do not result in significant technology transfers, not even within the military sector.

Military Spending and Development

This paper considers the link between arms spending and economic growth for developing countries, in particular whether high spending on arms is likely to have a negative effect on economic growth and what benefits that might be gained by reducing it. The literature is complex and difficult to summarize, with studies differing theoretically, in the empirical methods they use, in the coverage of countries and time series, and in their quality and significance. Nevertheless, the paper argues that the empirical analyses suggests that there is little or no evidence for a positive effect on economic growth and that it is more likely to have a negative effect, or at best no significant impact at all. Thus, reducing arms and military spending need not be costly and can contribute to, or at the very least provide the opportunity for, improved economic performance in developing countries.Military Spending; Development; growth

Macroeconomics and Violence

This chapter considers macroeconomic aspects of violence. It moves beyond the usual focus on war to argue the economic importance of all forms and aspects of armed and unarmed violence. Violence refers to acts of self-harm, interpersonal violence, and collective violence. Self-harm includes suicide; interpersonal violence includes organized criminal violence as well as domestic and workplace violence. Collective violence generally denotes political entities that are in, or at risk of, internal or external violent conflict as well as those that are in an insecure postwar predicament or wracked by pervasive armed criminal violence. In the past these different aspects of violence have been studied by different academic disciplines, with political scientists and defense economists tending to study the causes, consequences, and, lately, potential remedies of large-scale collective violence; and criminologists, public health experts, and crime economists tending to study interpersonal violence and self harm. Recognizing the economic importance of all aspects of violence means that macroeconomic policy cannot be considered in isolation from microeconomic developments or from regional, sectoral, distributional, and other economic policies, nor from the social contexts in which violence takes place. The increasing complexity and interrelatedness of the various aspects of the economics of violence means that any discussion of the macroeconomic issues has to consider the cost of conflict and violence more broadly conceived. The chapter reviews violence, measures and measurements of the cost of violence, the economic causes and consequences of violence, some macroeconomic aspects of recovery from violence and postwar reconstruction, and some of the necessary framework conditions for recovery from violence.Keywords: Violence, macroeconomics, postconflict recovery, conflict-affected states

On the Cost of Violence and the Benefits of Peace

Wars can be immensely damaging to economies, and they can leave long-lasting scars on society. What are considered to be postwar or postviolence situations can see ongoing nonwar political, domestic, and criminal violence, with war economies not ending with the formal cessation of hostilities. Unarmed violence can have important effects and even forms of nonviolent conflict can carry substantial, measurable economic consequences. Surprisingly little substantive economics work on the subject is done particularly work that would deal with the possible paths countries can take from crises and there seems to exist an unfortunate lack of understanding among economists of the complexities of war and violence and its impact on economy and society, leaving a sometimes unrecognized legacy of violence and loss. This essay deals with some of the issues involved.Macroeconomics; violence; costs and benefits; peace; conflict-affected states