Theoretical and Econometric Issues in Analysing the Military Expenditure-Growth Nexus

This paper surveys some of the theoretical and econometric issues involved in estimating growth models that include military spending. In particular, it critically evaluates the commonly used Feder-Ram model, detailing its problems and limitations and suggesting a more acceptable theoretical approach. It also surveys the econometric issues involved in estimating these models and uses a panel of 28 countries study to evaluate the different approaches and to draw some suggestions for the development of future research. Comments welcome This is a revised version of work presented to the Peace Science Society Panel Session, American Economics Association/ASSA Annual Meetings, Atlanta January 2002 and the Sixth Annual Conference on Econometric Modelling for Africa, University of Pretoria, July 2001. We are grateful to the participants for comments and the ESRC for support, for Smith under grant L138251003 and for Dunne under R00239388.