Name =Waqas Awan

Class = M.com

Defence Expenditures & Impact on Economic Growth

1. Introduction Assessing the importance of military spending to the economy

remains an important task, especially given the growth in military spending in recent years and the recent financial crisis and recession.

According to SIPRI (2008) world military spending in 2007 was $1339 billion, 2.5% of world GDP, an increase from 2006 of 6% in real terms. Indeed, between 1998 and 2007 military spending increased by 45% in real terms, a trend due at least in part to the second Gulf War and the massive intervention of the US in Afghanistan after the 9/11 terrorist attack.

There was a change in the trend in regional shares of military spending in GDP at the end of the nineties, the most marked change being the growth in United States military burden, with the declines of the nineties bottoming out and subsequently

increasing for East Asia and South America.

Definition:

“Military expenditures data from SIPRI are derived from the NATO definition, which includes all current and capital expenditures on the armed forces, including peacekeeping forces; defense ministries and other government agencies engaged in defense projects; paramilitary forces, if these are judged to be trained and equipped for military operations; and military space activities. “

Explaination Such expenditures include military and civil

personnel, including retirement pensions of military personnel and social services for personnel; operation and maintenance; procurement; military research and development; and military aid (in the military expenditures of the donor country).

Excluded are civil defense and current expenditures for previous military activities, such as for veterans' benefits, demobilization, conversion, and destruction of weapons.

This definition cannot be applied for all countries, however, since that would require much more detailed information than is available about what is included in military budgets and off-budget military expenditure items.

(For example, military budgets might or might not cover civil defense, reserves and auxiliary forces, police and paramilitary forces, dual-purpose forces such as military and civilian police, military grants in kind, pensions for military personnel, and social security contributions paid by one part of government to another.)

Defece Expenditures personnel

all expenditures on current personnel, military and civil

retirement pensions of military personnel

social services for personnel and their families

operations and maintenance

procurement

military research and development

military construction

military aid (in the military expenditures

Relationship between Growth rate and Defence Expenditures

The articles shows that there is strong relationship between growth rate and mil.expenditures for developed countries.

But,there is negative relationship for less developed countries

GDP and Military Expenditure of India and Pakistan

The Economic Effects of Military Spending

1. Labour

2. Capital

3. External relations

4. Demand

5. Socio-Political

The Economic Effects of Military Spending

1.Labour:

An important problem in developing countries is creating adequate skilled and educated labour as the economy develops. Military spending can have both positive and negative effects. The military can train soldiers and conscripts with valuable technical and administrative skills which they take into civilian life. It can also have modernizing effect, with organizational skills and modern attitudes.

2.Capital:

Military spending can have positive or negative effects on both savings and investment. It is argued that if increases in military expenditure are funded by taxation, then if these expenditures are reduced in the future savings propensities may increase. In developing countries, however, raising new revenue from taxation can be difficult, thus military expenditure may be funded by increased money supply which may lead to inflation which can reduce savings.

3.External relations:

The impact of military expenditure on the

Balance of Payments will depend upon whether or not a country produces arms and whether or not it receives military related aid. In most developing countries imports of weapons will place a huge burden on the economy, through using scarce foreign

exchange, and will make trade deficits difficult to avoid.

4.Demand: Clearly military spending in common with any form of

government expenditure will have effects on aggregate demand and in situations of less than full employment will lead to increased output, with income multiplier effects and accelerator effects through investment.

5.Socio-Political:

Military expenditure may provide the

conditions under which development can take place. The military may provide control and discipline of labour, reduce internal conflict, and be a modernizing influence. As discussed above, they can impart discipline on conscripts, making them more suited to industrial labour when they leave the forces, and can

provide skills which can be of value in the civil sector.

The value for Military expenditure

The value for Military expenditure (current LCU) in Pakistan was 543,000,000,000 as of 2011. As the graph below shows, over the past 23 years this indicator reached a maximum value of 543,000,000,000 in 2011

and a minimum value of 47,300,000,000 in 1988.