Productivity of public spending, sectoral allocation choices, and economic growth

Economic Development and Cultural Change

Volumn 46, Issue 2, 1998, Pages 291-303

  Baffes, John ^a   Shah, Anwar ^a  

^a WORLD BANK   (United States)

Author keywords

[No Author keywords available]

Indexed keywords

DEVELOPMENT STRATEGY; ECONOMIC GROWTH; HUMAN RESOURCES; PUBLIC SPENDING;

EID: 0031831313     PISSN: 00130079     EISSN: None     Source Type: Journal    
DOI: 10.1086/452339     Document Type: Article

References (44)

1. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
2. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
3. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
4. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
5. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
6. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
7. For investment in human capital see R. Lucas, "On the Mechanics of Economic Development," Journal of Monetary Economics 21 (1988): 3-42; and G. S. Becker, K. M. Murphy, and R. F. Tamura, "Human Capital, Fertility, and Economic Growth," Journal of Political Economy 98 (1990): S12-S37; for knowledge spillovers, see P. M. Romer, "Increasing Returns and Long Run Growth," Journal of Political Economy 94 (1986): 1002-37; for investment in physical capital and infrastructure, see B. DeLong and L. Summers, "Equipment Investment, Relative Prices, and Economic Growth," (Harvard University, Cambridge, Mass., 1990, mimeographed); and K. Murphy, A. Shleifer, and R. Vishny, "Industrialization and the Big Push," Journal of Political Economy 97 (1989): 103-26. For education, see L. H. Summers, "Investing in All People: Educating Women in Developing Countries," Economic Development Institute Seminar Paper no. 45 (World Bank, Washington, D.C., 1985). A. Alesina and R. Perotti, "The Political Economy of Growth: A Critical Survey of the Recent Literature," World Bank Economic Review 8, no. 3 (September 1994): 351-72, make a distinction between endogenous-growth literature and political economy literature where the latter postulates that economic policy (and hence economic growth) is a result of political struggle within an institutional structure.
8. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
9. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
10. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
11. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
12. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
13. See, e.g., D. Aschauer, "Is Government Spending Productive?" Journal of Monetary Economics 23 (1989): 177-200; E. R. Berndt and B. Hansson, "Measuring the Contribution of Public Infrastructure Capital in Sweden," Scandinavian Journal of Economics 94 (1992): 151-68; G. R. Richards, "Endogenous Technological Advance and Postwar Economic Growth: A Production Function Analysis," Eastern Economic Journal 18 (1992): 315-32; C. Lynde and J. Richmond, "Public Capital and Total Factor Productivity," International Economic Review 34 (1993): 401-14; A. Shah, "Dynamics and Public Infrastructure, Industrial Productivity and Profitability," Review of Economics and Statistics 74 (1992): 28-36; and A. Munnell, "Why Has Productivity Growth Declined? Productivity and Public Investment," New England Economic Review (January/February 1990), pp. 3-22.
14. A recent article that considered the effects of the stock of public capital on economic growth in 23 Organization for Economic Cooperation and Development countries is P. Cashin, "Government Spending, Taxes, and Economic Growth," IMF Staff Papers 42 (1995): 237-69.
15. R. Solow, "Technical Change and the Aggregate Production Function," Review of Economics and Statistics 24 (1957): 312-20.
16. A relatively large body of literature has utilized Cobb-Douglas specification in growth-accounting models. See, e.g., J. Antle, "Infrastructure and Aggregate Agricultural Productivity: International Evidence," Economic Development and Cultural Change 31 (1983): 609-19; D. Aschauer (n. 2 above); and V. Thomas and Y. Wang, "Government Policies and Productivity Growth: Is East Asia an Exception?" (World Bank, Washington, D.C., 1992, mimeographed).
17. A relatively large body of literature has utilized Cobb-Douglas specification in growth-accounting models. See, e.g., J. Antle, "Infrastructure and Aggregate Agricultural Productivity: International Evidence," Economic Development and Cultural Change 31 (1983): 609-19; D. Aschauer (n. 2 above); and V. Thomas and Y. Wang, "Government Policies and Productivity Growth: Is East Asia an Exception?" (World Bank, Washington, D.C., 1992, mimeographed).
18. A relatively large body of literature has utilized Cobb-Douglas specification in growth-accounting models. See, e.g., J. Antle, "Infrastructure and Aggregate Agricultural Productivity: International Evidence," Economic Development and Cultural Change 31 (1983): 609-19; D. Aschauer (n. 2 above); and V. Thomas and Y. Wang, "Government Policies and Productivity Growth: Is East Asia an Exception?" (World Bank, Washington, D.C., 1992, mimeographed).
19. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
20. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
21. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
22. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
23. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
24. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
25. A good review of the origins and development of endogenous-growth theory can be found in four articles published in the Journal of Economic Perspectives (vol. 8 [Winter 1994]) symposium: P. M. Romer, "The Origins of Endogenous Growth," pp. 3-22; G. M. Grossman and E. Helpman, "Endogenous Innovation in the Theory of Growth," pp. 23-44; R. M. Solow, "Perspectives on Growth Theory," pp. 45-54; and H. Pack, "Endogenous Growth Theory: Intellectual Appeal and Empirical Shortcomings," pp. 55-72. For a survey of models using linear regressions of growth on economic indicators, see R. Levine and A. Renelt, "A Sensitivity Analysis of Cross-Country Growth Regressions," American Economic Review 82 (1992): 942-63. They also examine the sensitivity of these models regarding the particular selection of explanatory variables. Also, for the relationship between growth and technical change, see C. Hulten, "Growth Accounting When Technical Change Is Embodied in Capital," American Economic Review 82 (1992): 964-80.
26. See L. R. Christensen, D. W. Jorgenson, and L. J. Lau, "Transcendental Logarithmic Production Frontiers," Review of Economics and Statistics 55 (1973): 28-45.
27. λ=1, where K denotes the input vector. See F. W. McElroy, "Returns to Scale, Euler's Theorem and the Form of Production Functions," Econometrica 37 (1969): 275-79. The definition introduced in the text is used for computational purposes.
28. One limiting factor regarding the selection of countries was data availability.
29. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
30. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
31. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
32. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
33. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
34. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
35. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
36. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
37. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
38. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
39. Studies that have found a positive correlation between military expenditures and economic growth include D. Landau, "The Economic Impact of Military Expenditures," Policy Research Working Paper no. 1138 (World Bank, Washington, D.C., 1993); M. A. Nelson and R. D. Singh, "The Deficit-Growth Connection: Some Recent Evidence from Developing Countries," Economic Development and Cultural Change 43, no. 2 (October 1994): 167-91; E. Benoit, "Growth and Defence in Developing Countries," Economic Development and Cultural Change 26, no. 2 (January 1978): 271-80; E. S. Macnair, J. C. Murdoch, C.-R. Pi, and T. Sandler, "Growth and Defense: Pooled Estimates for the NATO Alliance, 1951-1988," Southern Economic Journal 61, no. 3 (January 1995): 846-60; and B. Biswas, "Defense Spending and Economic Growth in Developing Countries," in Defense Spending and Economic Growth, ed. J. E. Payne and A. P. Sahu (Boulder, Colo.: Westview, 1993). On the other hand, the following studies have found negative correlation between defense expenditures and economic growth: P. Faini, P. Annex, and L. Taylor, "Defense Spending, Economic Structure, and Growth: Evidence among Countries and across Time," Economic Development and Cultural Change 32, no. 3 (April 1984): 487-98; S. Deger, "Economic Development and Defense Expenditure," Economic Development and Cultural Change 35, no. 1 (October 1986): 179-96; D. Lim, "Another Look at Growth and Defense in Less Developed Countries," Economic Development and Cultural Change 31 (1983): 377-84; and K. W. Rothchild, "Military Expenditures, Exports, and Growth," Kyklos 26, no. 4 (1973): 804-13. B. Biswas and R. Ram, "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change 34, no. 2 (January 1986): 361-72; and S. Deger and S. Sen, "Military Expenditure, Spin-Off, and Economic Development," Journal of Development Economics 13, no. 1-2 (August-October 1983): 67-83, have found mixed evidence.
40. Admittedly, military capital cannot be viewed as input in the production process as the other types of capital, since its effect on GDP is uncertain. As Deger put it: "Defense spending increases national security and therefore improves the environment within which growth and development can prosper. In addition, there are spin-offs that promote development. Taken together, these factors imply that, potentially, military spending could enhance economic growth. On the other hand, military expenditure reduces resources available for investment and possibly for consumption. In addition, it causes distortions in the economy that reduce efficiency. Taken together, these latter factors imply that military spending reduces the rate of growth." It is the net effect that is being investigated here. (S. Deger, "Military Expenditure and Economic Development: Issues and Debates," in Military Expenditure and Economic Development: A Symposium on Research Issues, ed. G. Lamb and V. Kallab [Washington, D.C.: World Bank, 1992], p. 37).
41. One should note here that the Latin American region had the least satisfactory performance among the four regions considered, as the t-statistics indicate.
42. We have used the ICP measure of GDP, which is based on the United Nations International Comparison Program. See World Bank, World Development Report 1991: The Challenge of Development (Oxford: Oxford University Press, 1991).
43. We owe this observation to a reviewer. Some other reasons as to why military spending may positively affect economic growth are generation of externalities, productivity differentials between military and civilian sectors, and fuller utilization of the country's productive capacity (see Nelson and Singh [n. 10 above]). Engagement in scientific and technical specialties as well as in research and development activities is another example (see Benoit [n. 10 above]).
44. An alternative explanation would be that medium- to high-income countries allocate optimal amount of resources to the military sector, while low-income countries cross the "optimal threshold" where the negative role of resource allocation dominates the positive effects.