Economic Consequences of Lower Military Spending: Some Simulation Results

ByJerald A Schiff, Tamim Bayoumi, Daniel P. Hewitt

March 1, 1993

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

The IMF MULTIMOD model is used to trace the economic impact of a 20 percent reduction in world military expenditures. GDP falls in the short run, however private consumption and investment rise, leading to an increase in GDP in the medium and long run. The estimated gains to economic welfare are substantial, particularly for developing countries, although most of these gains are realized in the long run. A positive international economic externality is found to exist, implying that for any given country the economic gains from a coordinated reduction in military expenditures exceed the gains from a unilateral reduction.

Subject: Consumption, Defense spending, Expenditure, Imports, International trade, National accounts, Private consumption

Keywords: aggregate consumption gain, Consumption, Defense spending, Eastern Europe, economic growth, expenditure cut, GDP rise, Global, government consumption, Imports, increase consumption, investment expenditure, military expenditure, Private consumption, private sector, transfer expenditure, U.S. dollar, WP

Pages:
48
Volume:
1993
DOI:
https://doi.org/10.5089/9781451843460.001
Issue:
017
Series:
Working Paper No. 1993/017
Stock No:
WPIEA0171993
ISBN:
9781451843460
ISSN:
1018-5941

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