Abstract

How the military burden affects economic growth, especially in developing countries, is the subject of much research in the economic literature. Studies have varied on the findings of the effects of military expenditure (ME) on growth. Therefore, we see multiple schools of thought about the relationship between ME and economic growth. However, there is a consensus that ME does in general come at an economic cost.

In this paper, we use annual time series data on ME, economic growth, net export (NX), and central government expenditure (GE) in Israel and its four Arab neighbors for the period 1988-2010 to investigate the relationship between ME and the other variables for each country individually. The paper uses the unit root and cointegration techniques to determine the relationship between ME and GDP. To investigate the direction of causality between ME and GDP, we use Granger-Causality method.

The main conclusion is that “relative” peace time doesn’t mean countries will stop or reduce ME. The rate of ME growth might not be as fast as it is during war times, but it is affected positively by the local income and the economic situation of the country.

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