Defense Spending and Economic Growth around the Globe: The Direct and Indirect Link

In this study, we combine both demand- and supply-side models to investigate the direct and indirect link between defense spending and economic growth. With data from 161 states for 1990–2012, we conduct a comprehensive examination of the defense-growth nexus in the post-Cold War world. Our findings suggest that at the global level, military spending significantly dampens private investment but somewhat reduces unemployment. However, the direct economic effects of defense spending on growth are minimal at best.