Name =Waqas Awan
Class = M.com
Defence Expenditures & Impact on
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
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
secondGulfWar 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.
“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. “
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.)
all expenditures on current personnel, military and civil
retirement pensions of military personnel
social services for personnel and their families
operations and maintenance
military research and development
military aid (in the military expenditures
Relationship between Growth rate and
The articles shows that there is strong relationship
between growth rate and mil.expenditures for
But,there is negative relationship for less developed
GDP and Military Expenditure of India and Pakistan
The Economic Effects of Military Spending
3. External relations
The Economic Effects of Military Spending
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.
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.
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.
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.
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.