Empirical Study on Relationship between Defense Expenditure and Economic Development Based on Functional Data Cluster Algorithm

Abstract

Defense spending should flt for economic development and social afiord ability, thus study on the equilibrium relationship between defense spending and economic development is very important. This paper applies functional data clustering algorithm to categorize the countries by defense burden. It excludes interference of unexpected factors, transforms discrete data to continuous data, and flnally gets two groups of countries with higher and lower defense burden respectively. According to the clustering results, through panel data model, it explores the relationship between defense expenditure and economic development of each category. Results show that using functional data clustering algorithm, we can get difierent cluster results from traditional classiflcation. Each category includes both developing and developed countries. In addition, there exists long-term stable equilibrium relationship between defense expenditure and GDP in each class, but defense expenditure difierently impacts on economic growth in difierent countries.