Do Military Expenditures Crowd-out Health Expenditures? Evidence from around the World, 2000-2013

The paper examines the relationship between health and military expenditures using pooled cross-sectional (197 countries) and time series (2000-2013) data. Simultaneous equation models were employed to estimate the relationship between an array of public sector expenditures in order to address potential endogeneity. Our empirical findings strongly support the crowding-out hypothesis whereby increased military expenditures reduce the capacity of government to direct expenditures to health expenditures. These findings were robust to alternative specifications explored in the sensitivity analyses. Compared with upper-middle-income countries, the crowding-out effect became more pronounced among lower-middle-income countries. Consequently, this study shows that increased military expenditures negatively impacts health expenditures, and therefore poses as an important risk factor for population health and individual well-being. Moreover, it is the poorest of nations that are most sensitive to the negative effects of increased military expenditures.