Impact of Arms Production on Income Distribution and Growth in the Third World
Abstract
While common sense suggests that increased defense expenditures are
likely to harm a less developed country's (LDC's) development efforts,
economic theory does not provide any clear prediction of how the net
impact of an increase in the military burden would influence growth,
development, or welfare. 1 Classical theory, for example, would predict
on the basis of resource allocation that increases in defense will decrease
investment and/or civilian consumption and thus reduce growth
or welfare. Keynesian theory, on the other hand, implies that in the
presence of inadequate effective demand the operation of the income
multiplier would imply an increase in national product, resulting from
additional defense expenditures. Thus, there are purely economic
rationales for increased military spending. More specifically, for economies
operating with substantial excess capacity, additional demand
and output from expanded military expenditure will increase capacity
utilization, thereby increasing the rate of profit and possibly accelerating
investment. Whether in the short and long run the former or latter
effect dominates will determine the final outcome of defense on
growth.
Description
Economic Development and Cultural Change, October 1989.
Refereed Journal Article
Rights
This publication is a work of the U.S. Government as defined in Title 17, United States Code, Section 101. Copyright protection is not available for this work in the United States.Collections
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