Military Expenditures and Economic Growth: The Case of EU Countries

This contribution examines the relationship between military expenditures and economic growth in 28 EU countries between 1993 and 2014. The paper aims to verify the first pioneering hypothesis which claims that there is a negative relationship between military expenditures and economic growth in relatively poorer countries and a positive relationship in relatively richer countries. A cluster analysis is used to divide the nations into individual groups. The Feder-Ram model and multiple regression analysis with modified variables are then estimated for all groups based on the cluster analysis. The findings of the regression analysis mainly verified the hypothesis and showed a significant positive relationship between defence spending and economic growth in the case of more resource-abundant countries, and a significant negative relationship in the case of more resource-constrained countries. However, the Feder-Ram model showed statistically insignificant effects of military expenditures on economic growth.