Defense Expenditure and GDP Growth

National Security is the top priority of each country in the
world. Defense expenditure is considered as undesirable spending and a burden
on an economy because it diverts the resource allocation of that economy from
development projects. One of the first thing taught to students of economics is
that every economy in the world has limited primary resources. There are
maximum types of goods and services that can be produced with these resources
at a point in time. There is always trade-off between goods and services. In
order to produce more of a particular good or service other goods have to be
sacrificed in the economy. Normally production possibility frontier is used to
illustrate this concept and one of the classic example provided is the bread vs
guns. The point being that if an economy chooses to allocate more resources to
defense, it will have to make do with less consumers goods. Above and beyond
this perception and criticism countries continue to add to their defense
expenditures and to develop their military stock-pile and take as a primary
duty of governance.

Defense expenditure can affect economic growth of an economy in both
negative and positive ways. It can affect negatively through a  number of possible ways like crowding out
investments, interruptions to production activities, increasing govt debts etc.
On the other hand, it can also affect positively through an expansion of
aggregate demand, infrastructure developments, employment creation and
political stability etc. There is no theoretical results available about the
direction of causality between defense expenditure and economics growth of an
economy. However, there are number of empirical research studies have analyzed
the direction of causality between defense expenditure and economic growth but
their results are inconclusive.

                Literature shows that the effects of defense
expenditure on economic growth is an important and controversial topic among
the researchers. Why defense expenditure has increased over the period of years
and what are main causes for its increment, are main importance of this paper.
Currently prevailing terrorism in the world has increased the defense
expenditure in the world. After 9/11 country like Pakistan, India and USA etc
have increased their defense expenditures. Countries has increased defense
expenditures in order to maintain geopolitical position, war against terrorism,
to increased national security and armed race etc. Terrorism is the main cause
for the increment in defense expenditure because many countries like Pakistan,
Afghanistan, India and USA etc are facing terrorism and enhanced increased
their defense spending. Terrorism has increased the uncertainty in the world
and countries are struggling to increase their national security, so that their
countries can grow smoothly. National security is the top most concern of any
country, so they are struggling to overcome the terrorism and increasing their
national security.