Defense Expenditure and GDP Growth

National Security is the top priority of each country in theworld.

Defense expenditure is considered as undesirable spending and a burdenon an economy because it diverts the resource allocation of that economy fromdevelopment projects. One of the first thing taught to students of economics isthat every economy in the world has limited primary resources. There aremaximum types of goods and services that can be produced with these resourcesat a point in time. There is always trade-off between goods and services. Inorder to produce more of a particular good or service other goods have to besacrificed in the economy.

Normally production possibility frontier is used toillustrate this concept and one of the classic example provided is the bread vsguns. The point being that if an economy chooses to allocate more resources todefense, it will have to make do with less consumers goods. Above and beyondthis perception and criticism countries continue to add to their defenseexpenditures and to develop their military stock-pile and take as a primaryduty of governance.                        Defense expenditure can affect economic growth of an economy in bothnegative and positive ways. It can affect negatively through a  number of possible ways like crowding outinvestments, interruptions to production activities, increasing govt debts etc.On the other hand, it can also affect positively through an expansion ofaggregate demand, infrastructure developments, employment creation andpolitical stability etc. There is no theoretical results available about thedirection of causality between defense expenditure and economics growth of aneconomy.

However, there are number of empirical research studies have analyzedthe direction of causality between defense expenditure and economic growth buttheir results are inconclusive.                Literature shows that the effects of defenseexpenditure on economic growth is an important and controversial topic amongthe researchers. Why defense expenditure has increased over the period of yearsand what are main causes for its increment, are main importance of this paper.Currently prevailing terrorism in the world has increased the defenseexpenditure in the world.

After 9/11 country like Pakistan, India and USA etchave increased their defense expenditures. Countries has increased defenseexpenditures in order to maintain geopolitical position, war against terrorism,to increased national security and armed race etc. Terrorism is the main causefor the increment in defense expenditure because many countries like Pakistan,Afghanistan, India and USA etc are facing terrorism and enhanced increasedtheir defense spending. Terrorism has increased the uncertainty in the worldand countries are struggling to increase their national security, so that theircountries can grow smoothly. National security is the top most concern of anycountry, so they are struggling to overcome the terrorism and increasing theirnational security.