Worldwide Military Spending, 1990-95WP/96/64-EA Worldwide Military Spending, 1990-95 by Sanjeev Gupta, Jerald Schiff, and Benedict Clements This paper reviews recent developments in military expenditures worldwide and for different country groups. Military spending, which began to decline in the mid-1980s, has continued to decline through 1995, falling to 2.4 percent of GDP from 3.6 percent of GDP worldwide during 1990-95, a decline observable in all regions and for developing and industrial countries alike. The largest declines occurred in countries in transition, 4.9 percentage points of GDP, and the Middle East and Europe, 1.8 percentage points of GDP. In nominal terms, military spending fell by US$120 billion over the five years, with most of the decline in the former U.S.S.R. The peace dividend in 1995, calculated by comparing actual spending with that which would have resulted from an unchanged military spending-to-GDP ratio, was some US$345 billion dollars compared with 1990 and US$720 billion compared with 1985. It appears that countries making sharp cuts in military spending also reduced nonmilitary spending as well as the fiscal deficit, thereby encouraging private investment. Military spending cuts have also allowed countries to maintain or increase social spending in the face of total spending cuts. On the other hand, higher military spending may have crowded out private investment and, for some countries, public investment. Countries with Fund programs appear to have reduced military spending more sharply than developing countries as a whole, although this largely reflects outcomes in the transition economies. Evidence over a longer time period suggests that military spending has been less resilient in program countries than nonprogram countries, as nonprogram countries appear to have relied more heavily on cuts in military spending to implement fiscal adjustment. |