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Master\'s Thesis Slides

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Military Aid and Economic Growth

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Master\'s Thesis Slides

  1. 1. MILITARY AID AND Economic Growth Identifying Transmission Mechanisms in Sub-Saharan Africa Joshua M. Weinberg International and Development Economics University of San Francisco
  2. 2. How does Military Development effect Economic Development?
  3. 3. Military as Institution Sovereignty and Security External Threats and Internal Rebellions Humanitarian Disasters Internal Local Security Border Security
  4. 4. Military as Institution Challenges to Development Professionalism and Capacity Sectional and Political Interests Civilian Oversight Economic Resources Human Rights
  5. 5. Role of Military Aid Positive Transfer institutional qualities Build professionalism Increase security Negative Increase military expenditure Grow bad institutions Increase conflict/insecurity
  6. 6. Military Aid International Military Training and Education (IMET) Military training provided by the US for select foreign nation personnel in the US and overseas Training is both… •Tactical (war fighting) •Institutional (professional development)
  7. 7. Military Aid International Military Training and Education (IMET) Military training provided by the US for select foreign nation personnel in the US and overseas Training is both… •Tactical (war fighting) •Institutional (professional development)
  8. 8. Military Aid IMET Stated Goals Defense relationship/Interoperability Institutional capacity/self-sufficiency Exposing foreign civilian and military officials to: • Democratic values • Role of the military in a civilian-led government • Military professionalism • International norms of human rights
  9. 9. Military Aid IMET Stated Goals Defense relationship/interoperability Institutional capacity/self-sufficiency Exposing foreign civilian and military officials to: • Democratic values • Role of the military in a civilian-led government • Military professionalism • International norms of human rights
  10. 10. Military Aid Foreign Military Finance (FMF) Grants and loans to foreign nations for acquisition of: • Military equipment (e.g. weapons, vehicles) • Military services (e.g. logistical support) • Military training (tactical and institutional)
  11. 11. Military Aid FMF Stated Goals Support regional stability Interoperability with US and coalition forces Enable allies to improve defense capabilities
  12. 12. Military Aid Funding Budget Request (President) Appropriation (Congress) Allocation (State Dept.) Implementation (Dept. of Defense)
  13. 13. Military Aid Funding
  14. 14. Panel Data 1995-2007 Military Aid data limitation Structural change in Military Aid since Cold War Sub-Saharan Africa (SSA) 45 Countries Unique Characteristics
  15. 15. Methodology Literature Growth Empirics Literature “Aid and Growth in Sub-Saharan Africa” • Gormanee, Girma and Morrissey (2005) “Regime Change, Economic Policies and the Effect of Aid on Economic Growth” • Islam (2005) Military Aid Literature “The Fiscal Impact of US Military Assistance Program” • Stein, Ishimatsu and Stoll (1985)
  16. 16. Transmission Mechanisms Military Aid
  17. 17. Transmission Mechanisms Institutions Military Aid Conflict Fiscal Policy
  18. 18. Transmission Mechanisms Institutions Economic Military Aid Conflict Growth Fiscal Policy
  19. 19. Transmission Mechanisms Institutions Economic Military Aid Conflict Growth Fiscal Policy
  20. 20. Residual Instruments – Formal Model Y = μX + γ ( X − X ) + U * *
  21. 21. Residual Instruments – Formal Model Y = μX + γ ( X − X ) + U * * Y ≈ Growth X ≈ Transmission Mechanism Z ≈ Covariates (including Military Aid)
  22. 22. Residual Instruments – Formal Model Part of X explained by factors other than Z Y = μX + γ ( X − X ) + U * * Y ≈ Growth X ≈ Transmission Mechanism Z ≈ Covariates (incl. Military Aid)
  23. 23. Residual Instruments – Formal Model Y = μX + γ ( X − X ) + U * * X = X + η = ωZ + η * Y ≈ Growth X ≈ Transmission Mechanism Z ≈ Covariates (incl. Military Aid)
  24. 24. Residual Instruments – Formal Model Y = μX + γ ( X − X ) + U * * X = X + η = ωZ + η * Strength of link between X and Z Y ≈ Growth X ≈ Transmission Mechanism Z ≈ Covariates (incl. Military Aid)
  25. 25. Residual Instruments – Formal Model Trans. Mechanism = X = κ1 + κ 2 MilAid
  26. 26. Residual Instruments – Formal Model Trans. Mechanism = X = κ1 + κ 2 MilAid Part of the Transmission Mechanism that is not attributed to Military Aid
  27. 27. Residual Instruments – Formal Model Trans. Mechanism = X = κ1 + κ 2 MilAid Estimated from the residual of regressing the Transmission Mechanism on Military Aid
  28. 28. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U
  29. 29. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U Growth
  30. 30. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U Transmission Mechanism
  31. 31. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U Military Aid
  32. 32. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U Vector of covariates
  33. 33. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U substitute… X = κ1 + κ 2 MilAid
  34. 34. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U substitute… X = κ1 + κ 2 MilAid Residual from first stage equation
  35. 35. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U X = κ1 + κ 2 MilAid g = β1 ( X − κ 2 MilAid ) + β1 (κ 2 MilAid ) + β 2 MilAid + β Z z + U ′
  36. 36. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U X = κ1 + κ 2 MilAid g = β1 ( X − κ 2 MilAid ) + β1 (κ 2 MilAid ) + β 2 MilAid + β Z z + U ′ g = β1κ1 + ( β1κ 2 + β 2 ) MilAid + β Z z + U ′
  37. 37. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U X = κ1 + κ 2 MilAid g = β1 ( X − κ 2 MilAid ) + β1 (κ 2 MilAid ) + β 2 MilAid + β Z z + U ′ g = β1κ1 + ( β1κ 2 + β 2 ) MilAid + β Z z + U ′
  38. 38. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U X = κ1 + κ 2 MilAid g = β1 ( X − κ 2 MilAid ) + β1 (κ 2 MilAid ) + β 2 MilAid + β Z z + U ′ g = β1κ1 + ( β1κ 2 + β 2 ) MilAid + β Z z + U ′ Effect of Transmission Mechanism (no change in coefficient)
  39. 39. Residual Instruments – Formal Model ′ g = β1 X + β 2 MilAid + β Z z + U X = κ1 + κ 2 MilAid g = β1 ( X − κ 2 MilAid ) + β1 (κ 2 MilAid ) + β 2 MilAid + β Z z + U ′ g = β1κ1 + ( β1κ 2 + β 2 ) MilAid + β Z z + U ′ Only changes the coefficient on Military Aid (includes effect via Transmission Mechanism)
  40. 40. Residual Instruments – Interpretation If effect of Transmission Mechanism on Growth is..... + …and effect of Military Aid on Transmission Mechanism is… + …therefore, change in Military Aid coefficient will be… + If effect of Transmission Mechanism on Growth is… - …and effect of Military Aid on Transmission Mechanism is… + …therefore, change in Military Aid coefficient will be… -
  41. 41. Institutions Institutions Index based on six indicators: Voice and Accountability Political Stability and Absence of Violence Government Effectiveness Regulatory Quality Rule of Law Control of Corruption Principle Component Analysis
  42. 42. Institutions Adapted Islam (2005) Institutions Equation:
  43. 43. Institutions Adapted Islam (2005) Institutions Equation: Growth: • Gross Domestic Product (GDP) per capita (% annual change)
  44. 44. Institutions Adapted Islam (2005) Institutions Equation: Growth: • Gross Domestic Product (GDP) per capita (% annual change Military Aid: • Log Transformed Moving Average (3 year window)
  45. 45. Institutions Adapted Islam (2005) Institutions Equation: Growth: • Gross Domestic Product (GDP) per capita (% annual change Military Aid: • Log Transformed Moving Average (3 year window) Fixed Effects
  46. 46. Institutions Adapted Islam (2005) Institutions Equation: Growth: • Gross Domestic Product (GDP) per capita (% annual change Military Aid: • Log Transformed Moving Average (3 year window) Fixed Effects Year Dummies
  47. 47. Fiscal Policy Adapted Stein et al. (1985) Policy Equation Possible effects of Military Aid Additive Stimulative Substitutive
  48. 48. Fiscal Policy Variables Considered Domestic Military Expenditure Social Programs Government Consumption Tax Revenue Public Investment
  49. 49. Fiscal Policy Variables Considered Domestic Military Expenditure Social Programs Government Consumption Tax Revenue Public Investment
  50. 50. Growth Regression Potential Problems Endogeniety • Instrumentation Strategies Single Years vs. Multi-Year Blocks
  51. 51. Growth Regression Adapted Islam (2005) Growth Equation Policy Index • Inflation • Trade (% GDP) • Trade Openness Rating Financial Depth • M2/GDP
  52. 52. Residual Instruments – Interpretation If effect of Transmission Mechanism on Growth is..... + …and effect of Military Aid on Transmission Mechanism is… + …therefore, change in Military Aid coefficient will be… + If effect of Transmission Mechanism on Growth is… - …and effect of Military Aid on Transmission Mechanism is… + …therefore, change in Military Aid coefficient will be… -
  53. 53. Residual Instruments – Results
  54. 54. Further Research Individual Country Case Studies Military Institutional Index Possible Indicators
  55. 55. Thank You

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