Guns versus butter for economic growth: a disaggregated analysis of the impact of military expenditure

Few empirical studies have applied a disaggregated analysis of the impact of military expenditure on economic growth. The novelty of this study lies in its use of various econometric and statistical methods to assess the impact of disaggregated defence spending on economic growth in a developed economy like Greece, which has consistently spent over 2% of its GDP on military expenditures. This study employs the latest data from 1980 to 2023 to improve precision and relevance in the analysis. The findings possess substantial practical and theoretical ramifications. First, military expenditure stimulates economic growth in the short run but impedes it in the long run. Second, our research indicates that military personnel spending exerts the most pronounced and contradictory impact on economic growth relative to other categories of the military budget. Finally, the Granger causality results confirm that a robust feedback relationship exists between economic growth and military spending. In light of these results, it is essential for a country to follow a rational spending approach for national security and to implement a balanced spending strategy that promote the production of domestic armaments and technology, enhance human resources, and improve the labour market after military service, thus minimising inelastic expenditures such as wages and pensions.