Economics Model Analysis of Defence Expenditure and Economic Growth in the US

This paper expounds on the relationship between defence expenditure and economic growth. By selecting defence expenditure and economic indicators including GDP, gross value of imports and exports, fuel import and export value and foreign direct investment in the US from 1991 to 2010 as sample spaces, the paper is modeled on some analytical methods as ADF test, cointegration analysis and Grainger causality test. The paper analyzes the long-term equilibrium relationship between defence expenditure and economic growth, concluding that economic growth is the Granger cause of defence expenditure growth. Meanwhile, defence expenditure growth will have a positive impact on economic growth. The relationship between defence expenditure and economic growth is one hot topic in modern economics and military economics. Chinese and foreign scholars have conducted discussion and modeling analysis on this issue from different perspectives. Zhoulai Lu [1] summarizes various research results between "defence expenditure" and "economic growth" both at home and abroad, and the typical models are "Keynesian model", "Feder-Ram model" and "public products model". Chen [2], Xiaopeng Tang [3], Zhongyan Wang [4] and Zhengqian Xu [5], etc. conduct modeling analysis on the relationship between China's defence expenditure and economic growth with the methods of Grainger test and cointegration test, etc. Based on the samples of defense expenditure and important economic indicators in the US from 1991 to 2010, the thesis carries out a detailed modeling analysis and deliberates on this hot issue combined with the modeling results of the above thesis.