Defense Spending and Economic Growth: An Empirical Investigation in the Case of Greece

Abstract

The existing empirical literature presents a limited number of country-specific studies that investigate the relationship between defense expenditures and economic growth. Despite the mounting concerns in Greece regarding the underwhelming economic growth of recent years and the persistent issue of excessive defense expenditures, no empirical study has yet investigated the effects of defense spending on economic growth in both the short and long run. The present study aims to address the aforementioned gaps in the literature by applying the autoregressive distributed lag (ARDL) bound testing approach to cointegration and analyzing the impact of defense spending, domestic investment, population growth, and literacy on economic growth in both the short and long term. The study employs the most up-to-date data available to ensure accuracy and relevance. The findings indicate that there is a positive impact of military expenditure on the economy’s growth in the short term. Nonetheless, when considering a longer time period, the same factor exerts an adverse influence on the growth of the economy. The findings of our investigation indicate that excessive military expenditures have significant adverse impacts on important drivers of economic growth, such as domestic investment, literacy rates, and population expansion, among others.