DOES MILITARY EXPENDITURE PROMOTE ECONOMIC GROWTH AND SOCIAL WELFARE? THEORETICAL AND EMPIRICAL EVIDENCE IN TAIWAN

Abstract

This study aimed to investigate the effects of expanding the ratio of military expenditure on economic growth and social welfare. We constructed an endogenous growth model and employed an autoregressive distributed lag bounds test approach to avoid the implicit endogeneity and heterohomogeneous problem. A comparison of the theoretical and empirical test results showed that increased military expenditure will lead to a lower economic growth, and a higher ratio of military expenditure may decrease social welfare. These findings, in view of achieving economic performance or social welfare, may also explain the advocacy related to arms race (guns) and disarmament (butter) issues in recent decades, as well as provide guidance to policy makers when setting priorities in the government’s spending.