The arms trade, wars, military expenditure and economic growth in the United States and related countries

Abstract

The aims of this thesis are 1) to examine the relationship between the arms trade, war participation, military expenditure, and the economic situation in arms exporting countries, 2) to investigate the feedback on military expenditure and economic growth in three different groups of countries: arms and oil importing countries, oil exporting but arms importing countries, and arms exporting countries, 3) to study the roles of the United States in global wars, and 4) to analyze the relationship between participation in major wars and the economic situation in military superpower countries. Both qualitative and quantitative analysis methods are employed to analyze the secondary data from between 1989 and 2013 that are obtained from various sources.

The study result reveals that arms exporting countries with higher military expenditure participate in wars more frequently. Furthermore, it is found that the volume of military expenditure is positively related to the volume of arms transfers. Moreover, the frequency of war participation of arms exporting countries has a positive relationship with the volume of arms transfers. Furthermore, it is likely that arms exporting countries participate in wars in foreign countries whether they are encountering economic sluggishness or not.

The result of this thesis indicates that for arms and oil importing countries, the relationship between the share of military expenditure and economic growth is insignificantly negative. Perhaps, because the military sector of these countries brings about some economic benefits by providing both military and non-military services for the civilian sector; therefore the negative impacts of military expenditure on GDP growth are reduced. On the other hand, the results show that the share of military expenditure has a significantly negative effect on economic growth in oil exporting but arms importing countries. This result indicates the crowding-out effects of military expenditure. In contrast, the share of military expenditure has a significantly positive effect on economic growth in arms exporting countries. The result indicates the demand side effects of military expenditure on increases in resource employment in defense industries. Furthermore, increases in R&D in defense industries might contribute to supply side effects. Moreover, military expenditure might affect economic growth through security channels.

The United States has an important role in global wars. The defense industry is an important industry in the United States. In addition, since 1946 it has undertaken military intervention in foreign countries in almost every year. Using panel data during the time period 1960 to 2010 on the United States and five other military superpower countries, it is found that economic growth in military superpower countries has a significantly negative relationship with the start of participation in a major war. Additionally, it is found that the number of minor war engagements has a significantly negative relationship with the start of participation in a major war by the military superpower countries.