External security threats, defense expenditures, and the economic growth of less-developed countries

The interrelationship of defense expenditures and external security threats in altering the rate of economic growth in less-developed countries (LDC) is clarified. The argument that external conflicts promote economic growth and social development is examined. Three interrelated hypotheses are examined: 1. External security threats promote GDP growth. 2. Defense expenditures, overall, have little impact of GDP growth. 3. Failure to account for the influence of external security threats on both defense expenditures and GDP growth results in a spurious correlation between these 2 variables. Statistical evidence is presented that supports all 3 hypotheses. It is argued that external conflicts promote economic growth through a variety of mechanisms, including fostering a greater degree of economic self-reliance, allowing nations to realize many of the benefits of import substitution without incurring the steep costs such policies typically require when implemented via trade restrictions. Cross-sectional data taken from a sample of 75 LDCs for the period 1974-1989 are used. The results are subjected to a sensitivity test.