A Century of Tradeoffs: Defense and Growth in Japan and the United States

We examine the relationship between defense spending and economic growth in the United States during 1889-1991 and Japan during 1879-1990. We find that the impacts of defense spending on economic growth were different in each country during the last century. Further, we find that impacts within each country change dramatically over time. These results suggest that the defense-growth tradeoff is neither universal nor constant. The findings further cast doubt on the notion that the costs of providing public goods is the primary factor in explaining the rise and fall of hegemonic predominance. The results also suggest that Japan can take advantage of spinoffs from government and military spending and further that higher military expenditures are unlikely to be deleterious to Japan's economic performance. In the U.S. case, the results suggest reduced military spending will help the economy. A greater burden sharing between the U.S. and Japan may be mutually beneficial.