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Sources of labour productivity: a panel investigation of the role of military expenditure

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Abstract

The objective of this paper is to examine the effect of military expenditure on productivity performance in 70 countries, over the period 1989–2011. We employ the labour productivity as a measure of productivity, while the military burden is initially utilized as an indicator of the level of military expenditure within the framework of a transcendental production function. Applying the system GMM method, it is observed that defence expenditure exerts a negative and statistically significant effect on labour productivity. The negative impact of military expenditure still holds, when an alternative measure of military spending is introduced into the model. The main policy implication of these results is that the overall productivity would be expected to improve, if military expenditures are replaced by civilian expenditures.

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Notes

  1. In the second argument, it may be possible that military expenditure actually contract productivity, while some of the other factors that affect productivity neutralizes the impact, thereby resulting in the stagnation of productivity.

  2. Argentina, Australia, Austria, Bahrain, Belgium, Bolivia, Botswana, Brazil, Bulgaria, Cameroon, Canada, Chile, China, Colombia, Cyprus, Denmark, Dominican Republic, Ecuador, Egypt, Fiji, Finland, France, Germany, Greece, Guatemala, Hungary, India, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kenya, Kuwait, Lesotho, Luxembourg, Malaysia, Malta, Mauritius, Mexico, Mongolia, Morocco, Netherlands, New Zealand, Norway, Paraguay, Peru, Philippines, Poland, Portugal, Romania, Rwanda, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sri Lanka, Swaziland, Sweden, Switzerland, Taiwan, Tanzania, Thailand, Tunisia, Turkey, United Kingdom, United States and Uruguay.

  3. The major issue with the two-step method is that it is biased downwards. Windmeijer (2005) introduced corrected standard errors to correct for small sample bias. In the process of estimation, we employ the Windmeijer’s (2005) corrected standard errors.

  4. This is also necessary because we are using all the available instruments.

  5. Many new inventions originate in the defense sector and that military considerations often have led to government-financed support for development of new technological products as is the case with the internet (Chu et al. 1995).

  6. In order to overcome the problem of “one size does not fit all”, we have divided the sample along the strata of developing and developed countries. However, the obtained estimates are not materially different from the results of the full sample. The outputs are not reported here because of space, they are however available upon request.

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  1. Faculty of Business, Multimedia University Malaysia, Room 5012, 75450, Melaka, Malaysia

    Sakiru Adebola Solarin

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Solarin, S.A. Sources of labour productivity: a panel investigation of the role of military expenditure. Qual Quant 50, 849–865 (2016). https://doi.org/10.1007/s11135-015-0178-0

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