A BRIEF REVIEW OF THE STATISTICAL LITERATURE
The major strand of the literature on the statistical relationship between military spending and economic growth comes from the field of development economics, where a host of studies have attempted to determine the influence of defense expenditures on economic development. According to the conventional wisdom—which is encapsulated in the official policy of lending institutions such as the World Bank and International Monetary Fund (IMF)—government expenditures on national defense carry an opportunity cost in the form of lower economic output and slower rates of output growth.1 The theoretical assumption is that resources spent on preparation for war, and on warfighting itself, could be better employed elsewhere. In particular, the devotion of valuable human capital to military rather than civilian research and development is assumed to significantly retard economic growth. Thus, a popular assumption for researchers and policymakers alike is that the influence of military spending on economic growth is negative.
But the empirical evidence on the military expenditures—growth relationship is decidedly ambiguous. In a study of 44 developing economies, for example, Benoit (1973) found no evidence that defense spending has an adverse effect on growth. In fact, even after controlling for reductions in foreign investment and aid as a result of military spending, the correlation between military expenditures and economic growth remained positive. More recently, a study by Babin (1986) looked at 88 developing economies from 1965 to 1981.____________________