The Military Expenditure – Economic Growth Nexus Revisited: Evidence from the United Kingdom

Abstract

The relationship between government defence expenditure and economic growth is a debated topic. This study uses UK data for the period of 1960–2012 and applies two of the most prevailing theories used within the literature, the ‘Feder-Ram’ and the ‘augmented Solow’ models, to assess this question. We utilise traditional model specifications, alongside extensively altered versions of both models, enabling a comprehensive comparison between them. The alterations to the models include re-evaluating how core variables are expressed, inclusion of measures of conflict, the impact of recession, etc. The results show that the augmented Solow model outperforms the Feder-Ram model, and we provide some explanations for this result. In addition, our results suggest that military expenditure has a positive effect on economic growth within the UK, implying that the decision to reduce defence spending may have been detrimental to the UK economy.