Military spending plays a significant role in economic growth of a country. However, the impact of military spending on economic growth is not a direct relationship, but takes a longer channel. The fact remains that military spending can substantially trigger economic growth if the government involved in the spending has effective policies that govern the defense expenditure. There are different approaches through which military spending affects the levels of economic growth of a country.
Experts have identified a negative correlation between the level of military expenditure and speculation in an economy. This is because a government must trade off investment resources for the sake of acquiring military facilities. This means that, in the short run, there is likely to be a fall in the level of investment, which consequently slows down economic growth in a country.
In addition, military spending affects economic growth through financial markets of wars and other international crises. Other researchers have identified a negative correlation between the military burden of a country and economic performance of a country. Other model developers have had an affinity to putting emphasis on the likely positive influence of military expenditure on GDP growth rate.
A long run payload between military expenditure and both private and public consumption could be another channel through which military spending affects economic growth. This is because consumption constitutes elements of human capital accumulation.
Military spending appears to contribute little towards stimulating demand in an economy. The long run reduction in the military burden has benefited both the private and public consumption, but not for investment.† However, this does not call for the absolute reduction in military spending, in an economy, since war is a significant impediment of economic growth. Thus, governments must balance between stimulation of aggregate demand components and military spending.