Defense Spending and the Economy - An Econometric View
AIR WAR COLL MAXWELL AFB AL
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With the perceived reduction of the threat to national interest brought on by the end of the Cold War there has been much talk concerning how to spend the peace dividend. Most people expect that dividend to be generated by improvements in the economy fueled by reductions in defense expenditure. There have been a myriad of articles written regarding the effects defense spending has on the economy. Many of the authors of these articles disagree with each other on these effects. Empirical analysis shows that while defense spending has slight negative effects on Gross Private Domestic Investment and growth rate of the Gross National Product, the correlations between these economic elements do not met statistical criteria for significance. Therefore, changes in Gross Private Domestic Investment and Gross National Product are driven by factors other than the relatively small amount dedicated to defense expenditure. Nonetheless, defense spending has been reduced over the past several years and is likely to continue to be reduced in the near future. Whether or not these reductions will bring about improvements in the financial condition of the United States will depend upon the way the savings generated from these reductions are used.
- Administration and Management
- Economics and Cost Analysis
- Military Forces and Organizations