#assignment week 1

The light in the cathedral burned his eyes, but they were safe. Even so he longs for his bright green sun glasses, they would be helpful right now. Too bad I dropped them outside. Maybe he could find some on their way to see the others. He felt bad moving the pews to block the doors but it needed to be done.

Dataset:

The dataset I chose to work with was the Gapminder (http://www.gapminder.org/data/). I am interested in global site strategy and what influences countries and companies investment in other countries.

Topic of Interest:

The topic of interest, I am interested in answering is does an increase in military expenditure lead to economic growth. From my own perspective military expenditure would appear to lead to strong economic growth as increased economic expenditure can lead to the development of new technologies. An example of this would be the US who in the late 1970's and early 1980's move to a qualitatively vastly superior armed forces ( over their cold war adversaries, the USSR) led to a huge development and popularization in ICT technology ( the personnel computer, early internet, dial up etc). Another example would be state of Israel who have spun out a series of technologies and companies from their military such as 'CyberArk'. However increase on military expenditure has had dire consequences on some countries. The most notable examples of this would have been the USSR whose in crease in military spending to keep up with the US and its NATO allies during the cold war was one of the contributing factors to the eventual collapse of the USSR and the ending of the 'Cold War'. Growing up in Ireland a lack of military expenditure has not appeared to impair the economic growth of a country, however Ireland's neighbors (UK,France) spend significant amounts on their respective military's and this does create jobs, scientific innovation.  It would be interesting to also see what factors affect a military expenditure having a positive or negative effect on the economy.

Codebook:

The variables of interest would be

Variables:

The variables (and the sources) I plan to use are:

Military expenditure (% of GDP) World Bank

Economic growth over the past 10 years  Various sources

GDP/capita growth over next 10 years Various sources

Democracy score (use as color) Polity IV project

Poverty (% people below $2 a day) The World Bank

Total GNI (PPP, current international $) World Bank

Trade balance (% of GDP) World Bank

Corruption Perception Index (CPI) Transparency International

Extreme poverty (% people below $1.25 a day) The World Bank

Energy production, per person Based on WDI data

Electricity use, per person BP

HDI (Human Development Index) UNDP

Oil consumption, per person BP

Personal computers (per 100 people) UN data

Arms exports (US$, inflation-adjusted) World Bank

Arms imports (US$, inflation adjusted) World Bank

Various Unemployment Rates International Labour Organization

Foreign direct investment, net inflows (% of GDP) World Bank

Exports (% of GDP) World Bank

How these variables relate to questions we are trying to answer is listed below:

Identification of a second topic for investigation:

A second topic of interest I wish to ask is there a difference in behaviour between the relationship between free (politically and economically free) countries and 'non free' countries. Other variables I wish to look at in relation to military expenditure are variables to do with a countries rule of law (including corruption), level of industrialization, personnel, political and business freedoms. Also it is worth considering other these would be :

Arms exports (US$, inflation-adjusted) World Bank

Arms imports (US$, inflation adjusted) World Bank

Various Unemployment Rates International Labour Organization

Literature review

Classical economics (supply based economics) would argue that by increasing spending on defense is most likely to lead to negative economic growth. This is based upon the idea that an increase in spending on defense causes a decrease in private investment and savings along with lower levels of consumer activity due to lower levels of consumer demand. While the Keynesian (economic output is positively associated with  total spending in the economy) school of economic theory would suggest that by increasing spending on defense, this increases demand, increases purchasing power, has a positive effect on education and R&D and ultimately positively affects the quantity of goods and services a country produces, Narayan and Singh8.

The effect of defence spending on economic growth has been studied in developing, developed or both types of countries. In developing countries Emile Benoit's1 study of military expenditure rates and economic growth rates in the early 1970's  astonished development economists by showing a positive association between the two. Subsequent studies by Dunne2 ,Smith3 and Compton6 have found neither positive or negative associations. Hatemi et al.4 study of military spending and economic growth in  largely developed countries shows a positive association between the two. While Lee et al.5 has found that there is an ideal balance between defense spending and economic growth. Korkmaz7 has looked at not only the economic growth but macro economic factors, such as unemployment and how they relate to military spending in 10 Mediterranean countries. It was found that while economic growth was negatively affected , unemployment was found to decrease. This contrasts with Cappelen et al. 9 study, which found that for Mediterranean countries for the period 1960-1980 defense spending had an overall positive effect on economic growth.

Korkmaz7 found that the use of  fixed economic resources on defense, infrastructural and services is largely determined by the current economic climate. While sources allocated to military expenditure  are acquired from alternative sources, it may have a negative impact on the economy. However  while military spending can be capital intensive and require qualified labour, this investment is found to also aid the populace through increasing employment and increasing the skilled labour base.  

Foreign direct investment and indirect foreign investment and as a consequence capital move between countries where there is a high level of trust (between nations), freedom (both political and economic) and stability (again political and economic)10. Trust and stability are two of the most  significant factors affecting economic advancement and expansion. Countries which lack economic and political stability, military expenditure can create budgetary pressures on nations11 and take monies away from social programs, causing greater political instability.

Hypothesis to test:

Does military spending increase economic growth or does it have a negative impact. Also is there a difference in this relationship based on a country being free (politically, economically and personnel) or not free (authoritarian, corrupt, unstable).

References:

Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 271-280.

Dunne, Paul. J. (1996) Economic Effects of Military Expenditure in Developing Countries: A Survey. In Making Peace Pay, edited by N. P. Gleditsch. Claremont, CA: Regina Books, 15.

Smith, R. (2000) Defence Expenditure and Economic Growth. In Making Peace Pay: A Bibliography on Disarmament and Conversion, edited by N.P. Gleditsch, G. Lindgren, N. Mouhleb, S. Smit and I. de Soysa. Claremont, CA: Regina Books, 15-24.

Hatemi-J, Abdulnasser, et al. Asymmetric Granger Causality between Military Expenditures and Economic Growth in Top Six Defense Suppliers. No. 201565. 2015.

Lee, Shin-Chyang, Cheng-Te Lee, and Shang-Fen Wu. "Military spending and growth: a small open economy stochastic growth model." Defence and Peace Economics (2015): 1-12.

Compton, Ryan A., and Bryan Paterson. "Military Spending and Growth: The Role of Institutions." Defence and Peace Economics (2015): 1-22.

Korkmaz, Suna. "The Effect of Military Spending on Economic Growth and Unemployment in Mediterranean Countries." International Journal of Economics and Financial Issues 5.1 (2015): 273-280.

Narayan, P.K., Singh, B. (2007), Modelling the Relationship between Defence Spending and Economic Growth for the Fiji Islands, Defence and Peace Economics, 18(4), 391-401.

Cappelen, A., Gleditsch N.P., Bjerkholt, O. (1984), Military Spending and Economic Growth in the OECD Countries, Journal of Peace Research, 21(4), 361-373.

Bekaert, Geert, et al. "Political risk spreads." Journal of International Business Studies 45.4 (2014): 471-493.