Sizing up the Peace Dividend: Economic Growth and Military Spending in the United States, 1948–1996

We examine the relationship between military expenditures and economic growth in the United States from 1948 to 1990, in order to gauge the potential peace dividend. Our main results suggest that military spending is a significant drain on the economy. We then examine the implications of a restructured international system for U.S. military expenditures and their resultant impact on economic growth in the 1990s. Simulations of Democratic and Republican proposals for cuts in defense spending suggest increases in economic output of between 2.5% and 4.5% over the period 1993–96.