Benoit Revisited: Defense Spending and Economic Growth in LDCs

In the early 1970s, Emile Benoit shocked development economists by presenting positive cross-country correlations between military expenditure rates and economic growth rates in less developed countries (LDCs). This article reviews the long debate that has followed. While the studies surveyed here differ widely in method and focus, the empirical results point to similar conclusions. First, efforts at re-estimating Benoit's correlation coefficients for different samples and different time periods all fail to reproduce Benoit's results. Second, while some studies uncover evidence of positive effects of military spending through human capital formation and technological "spin-off" effects, models that allow military spending to affect growth through multiple channels find that, while military spending may stimulate growth through some channels, it retards it through others, and the net effect is negative. The most important negative effect is that higher military spending reduces national saving rates, thereby reducing rates of capital accumulation. The existence of positive effects of military spending on economic growth, as conjectured by Benoit, still cannot be ruled out. However, the recent econometric evidence points to the conclusion that these positive effects, if they exist, are small relative to the negative effects, and that, overall, military spending has a weak but adverse impact on economic growth in developing countries.