Economic Consequences of Lower Military Spending: Some Simulation Results
IMF Working Papers, March 1, 1993
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- Economic Consequences of Lower Military Spending: Some Simulation Results
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Bibliographic details
- Authors: Jerald A Schiff, Tamim Bayoumi, Daniel P. Hewitt
- Published: March 1, 1993
- Series: IMF Working Papers
- DOI: https://doi.org/10.5089/9781451843460.001
Summary findings
- 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.
Key quantitative outcomes
- Shock modeled: 20 percent reduction in world military expenditures.
- Temporal pattern:
- Short run: GDP falls.
- Medium and long run: GDP increases due to rises in private consumption and investment.
- Distributional emphasis: gains to economic welfare are substantial, particularly for developing countries.
- Most welfare gains are realized in the long run.
Mechanisms and channels
- Private consumption increases following the reduction in military expenditures.
- Investment expenditure rises alongside private consumption, contributing to medium- and long-run GDP gains.
- International spillovers generate positive economic externalities: coordinated reductions produce larger gains for any given country than unilateral reductions.
Policy implications and interpretation
- Coordinated reductions in military expenditures yield larger economic gains per country than unilateral reductions, due to positive international economic externalities.
- Short-run adverse GDP effects may be offset by medium- and long-run increases in private consumption and investment, implying time-profile considerations for policy design.
- Developing countries stand to realize particularly large welfare gains, with most benefits materializing over the long run.
Metadata and classification (as presented in source)
- Authors: Jerald A Schiff, Tamim Bayoumi, Daniel P. Hewitt
- Date: March 1, 1993
- Series: Working Paper No. 1993/017
- Pages: 48
- DOI: https://doi.org/10.5089/9781451843460.001
- Subjects: 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
IMF Working Paper: "Economic Consequences of Lower Military Spending: Some Simulation Results" (Working Paper No. 1993/017).