The Effects of Military Expenditure on the Economic Growth of Cameroon

Project Details

Department
Economics
Project ID
EC0010
Price
5000XAF
International: $20
No of pages
61
Instruments/method
Quantitative method
Reference
Yes
Analytical tool
Statistical analysis
Format
 MS Word & PDF
Chapters
1-5

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Abstract

The purpose of this study was to investigate the effects of military expenditure on the economic growth of Cameroon. As specific objectives, the study had to investigate the effect of human capital and physical capital on the economic growth of Cameroon.

For this to be accomplished relevant literature was reviewed and necessary theories stated. The area of study in Cameroon and the data used are mainly secondary data of GDP population and military expenditure, human capital and physical capital gotten from World Development Indicators (WDI).

The method of analysis used is the ordinary least square method done through the SPSS software. The results showed that military expenditure has a negative effect on the economic growth of Cameroon.

Human Capital has a positive effect on the economic growth of Cameroon. Physical capital has a positive effect on the economic growth of Cameroon. And for any policy recommendation intending to improve the economic growth, the government is advised to put a keen eye on the level of finances it spends on the military.

CHAPTER ONE

INTRODUCTION

1.1 Background of the Study

Most of the least developed countries (LDCs) and developing countries (DCs) have suffered military or civil conflicts since the 1990s. These conflicts sometimes take place within states rather than between them, but it also causes equal or more human suffering, economic dislocation, and wasted development opportunities.

As a result, a significant portion of national budgets is incurred on military spending mostly on the basis of threat perception of political masters of nation-states. The justification of much of the growth of military expenditure is usually explained in terms of the need to maintain national security, law and order, internal disturbances, etc.

As per SIPRI estimates of 2013, global military expenditure in 2013 was US $1747 billion, around 2.4 per cent of world GDP. At times, it seems illogical to divert scarce resources, particularly in LDCs and DCs towards military expenditure at the cost of unattended basic human needs. (Trochim, 2006)

The ever-increasing size of military expenditure as a proportion of national budgets and vested interested in the arms industry has led to a renewed debate over whether the increase of military expenditure enhances or deteriorates economic growth and welfare. This phenomenon attracted the attention of researchers to examine short term and long term implication of military expenses on the economy.

Theoretically, there is no consensus about the impact of military expenditure on economic growth and causal linkages have also not been established explicitly. One of the reasons is the heterogeneity in the approaches of estimation and variation in sample sizes of data used in drawing evidence of linkages between military expenditure and economic growth.

Mostly empirical results are mixed and hence it is difficult to argue convincingly about the extent and direction of the relationship. In economics, military expenditure and economic growth linkages have been examined through a number of channels.

Many researchers have argued that an increase in military expenditure can have positive effects on an economy through an expansion of aggregate demand in the Keynesian framework. An increase in military expenditures can boost the economic growth of an economy through the Keynesian multiplier mechanism especially in the period of mass unemployment.

Therefore, it is important for the government to manage and increase aggregate demand. On the other side, many researchers have argued that military expenditure affects negatively through crowding out of the investment as theorized by classical macroeconomists. (Donnelly, 2009)

Different from the above positions, there are instances of findings showing no or mixed relationship between military expenditure and economic growth. Empirically, Benoit 2004, highlighted that the military expenditures may lead to growth by decreasing the unemployment rate, engaging in a variety of public works, scientific and technical innovations.

There are positive externalities of military expenditure through the development of the military sector on the civilian side of the economy. For example, the development of military infrastructure (highway, airport, road and information technology) causes higher economic growth.

Definitely, military spending provides protection to the nation citizen by maintaining internal and external security, thus creating positive trade and investment climate for domestic as well as foreign investors. Thus, military spending is expected to provide national security and subsequently enhance economic growth in the long-run.

On the other hand, many researchers argued that an increase in military expenditure can thwart economic growth. It is broadly used of resources for consumption that does not enhance the productive capacity of an economy.

There is research on the subject indicating towards tradeoff hypothesis between military expenditures and alternative productive investments. In this context, there is also evidence of the detrimental effects of military expenditures on growth. One of these is the diversion of scarce resources from domestic capital formation, education, health, infrastructure, etc which are expected to be more growth-oriented.

Furthermore, military expenditure can cause balance of payments problems and inflationary pressures on the economy which might retard growth. Due to ever-increasing conflicts and the resultant increase in military spending requires higher taxation to finance higher military spending which will depress growth prospects in long run.

Determining adequate levels of military spending and sustaining the burden of conflict has been among key fiscal problems in history. Ancient societies were usually less complicated in terms of administrative, fiscal, technological and material demands of warfare.

Eloranta (2016) said the most pressing problem was frequently, the adequate maintenance of supply routes for armed forces.  The emerging nation-states of the early modern period were much better equipped to fight wars.

However, the frequent wars, new gunpowder technologies and commercialisation of warfare forced them to consolidate resources for the needs of warfare. This also caused rulers to slowly but surely give up some of their sovereignty to be able to secure required credit both domestically and abroad.

The early modern expansion of European states started to challenge other regimes all over the world, made possible by their military and naval supremacy as well as later on the industrial prowess. The age of total war in their nineteenth and twentieth centuries finally pushed these states to adopt more and more efficient fiscal systems and enabled some of them to dedicate more than half of their GDP to the war effort during the world wars.

Comparatively, even though military spending was regularly the biggest item in the budget for most states before the twentieth century, it still represented only a modest amount of their GDP. The cold war period again saw high relative spending levels, due to the enduring rivalry between the west and the communist bloc.

Finally, the collapse of the Soviet Union alleviated some of these tensions and lowered the aggregate military spending in the world. But now, newer security challenges such as terrorism and various interstate rivalries have again pushed the world towards growing overall military spending.

Today, the main concern about the issue of military expenditures is that the world is continuing to devote large amounts to the military sector. Hirnissa and Bacharom (2009) claimed that higher military expenditure tends to be associated with higher economic growth and also as protection to maintain the peace of the world.

However, the public belief on this issue is that expenditures will lead to war. In addition, higher taxation is needed to finance higher military expenditures, thus, reducing economic growth in the long run.

This difference in the argument has led to different opinions on whether military expenditure has positive or negative effects on economic growth. Hassa (2003) emphasized four arguments about the effect channels. However, the causal relationship between these variables is also important to reach a general conclusion about the structure of countries as well as the effect channels.

In the early 1970s, Emil Benoit shocked development economists by presenting positive cross-country correlations between military spending rates and economic growth rates in LDCs. This existence of positive effects of military spending on economic growth as conjectured by Beniot still cannot be ruled out.

However, the recent econometric evidence points to the conclusion that these positive effects, if they exist, are small relative to the negative effects and that, overall, military expenditure has a weak but adverse impact on economic growth in developing countries.

Some studies uncover evidence of positive effects of military expenditure on economic growth through human capital formation and technological spin-off effects.

While models that allow military expenditure to affect growth through multiple channels find that, military spending may stimulate growth through some channels, it retards it through others and the net effect is negative. The most important negative effect is that military spending reduces national saving rates, thereby reducing rates of capital accumulation.

Developing countries have enough problems without either the waste of resources constituted by military expenditure or the social and economic destruction brought about by warfare. One of the strongest empirical influences on military expenditure reflects either neighbourhood arms races or the patronage demands of potentially powerful military establishments.

Both of these problems are potentially addressable. One of the other major influences on military expenditure in developing countries is internal rebellion. Where there are civil wars (like in the case of Cameroon now), military spending is greatly elevated. Further, there is evidence that governments set their defence expenditure at levels designed to deter such rebellions.

Both military expenditure and war retard development. This is not surprising but there is now reasonable quantitative evidence on the scale of effects. Military expenditure diverts government resources that could be put to better use like public services, infrastructure or lower taxes.

A joint analysis by the research departments of the World Bank and the International Monetary Fund (IMF) estimated the cost to growth level and the level of income of military expenditure.

The study found that for the average country, a doubling of military expenditure reduced the growth rate for a period, eventually leading to a reduction in the level of income by 20%. For developing countries, the adverse effects of a given level of military expenditure on income are probably even more costly than for the global average.

In developed countries, such expenditure may in part be concealed routes for providing subsidies to high-tech firms, hence the term “military-industrial complex”. In the poorer developing countries, military equipment is imported, rather than produced domestically and so does not offer any side benefits to technical progress

Looking at the cost of war, the most common form of war in developing countries is civil wars. Whereas international warfare is often brief, civil wars last a long time (typically around seven years). A recent analysis by Collier, P.  (2006) finds that such wars are getting longer, they now appear to continue for around three times as long as civil wars prior to 1980.

During a war, the economic growth rate is typically reduced by about 2%. The losses can sometimes continue even until post-war; for example, people may continue to move their wealth out of the country due to perceived high risks of further conflict.

Such perceptions would often not be misplaced. There is also new evidence that the cost of civil war spills over the whole region in the form of reduced growth rates. One route for this might be increased perceptions of risk on the part of investors.

Another might be regional reductions in demand following from the fall in income in the country that is directly affected. In summary, even where military expenditure is not associated with conflict, it is a drag on development. Active military conflict can lock a country into a sustained phase of economic contraction

Developing countries have astonishing levels of poverty, yet their governments choose to devote a significant proportion of their resources to military spending which as discussed above actually retards growth and so accentuates that poverty.

Reasons, why governments choose to use their resources in this way, can be seen by analysing global patterns of military expenditure and trying to understand why some countries spend a far higher proportion of GDP on the military than do others.

The global average of military spending is around 3.5% of GDP but ranges from virtually zero to an astonishing 45%. The following five factors may be the main causes of these differences; Active international warfare, Peacetime military budget inertia, Neighbourhood effects(arm races), International rebellion or civil war, Beneficiaries and vested interests.

The most obvious is that high military expenditure is sometimes a response to active warfare. We find that if a country is at international war, it spends around an additional 1.8%. Hence one direct explanation for military expenditure is whatsoever that causes war.

There are also large differences between military spending among countries that are at peace. We find that one important influence on spending is if there is a past history of international war. Countries that have such a history spend around 1.3% of GDP more than countries that do not have.

Possibly, this reflects an assessment of the higher risk of future conflicts. However, it may also reflect inertia or political interests i.e. once a country has built a large military, as happening during the war, there are internal forces maintaining the level of government expenditure. Such persistence would not be surprising; it is indeed common in other areas of public expenditure.

The extent to which past war raises military expenditure also reflects the fear of neighbours or aggressive intentions towards them. We might therefore expect that the level of military expenditure chosen by the government would, to an extent be influenced by the level chosen by its neighbours.

That is, the average level of spending on neighbouring countries significantly influences the level chosen by the government. This can be interpreted in various ways, the most obvious of which is that of a neighbourhood arms race. For most countries, the most serious external threats come from their neighbours and so the appropriate level of deterrence is set by the behaviour of neighbours.

 A different interpretation of the same phenomena is that regional expenditure is set by regional norms of behaviour, in a form of emulation. If the neighbours are spending a particular share of national income on defence, then the chiefs of the military or minister of defence have a relatively easy case to argue with the minister of finance, that their own country should spend approximately at the same level.

Whatever the interpretation, the consequence of this regional spillover is that military expenditure is in effect a regional public bad. Each time one country raise its military spending, there will be a ripple effect across the region. Further, as neighbours respond to the initial increase, the country that increased its military spending may itself respond with further increases (the classical process of arms race).

It is estimated that the typical multiplier from an initial increase in spending in one country to the new neighbourhood equilibrium may involve both the country and its neighbours having increased the level of spending by around three times the initial increase.

While the threat of international war is clearly one concern that might motivate military spending, for most developing country governments, internal rebellion is a far more likely threat than international war. Currently, civil wars are around ten times as common as international wars.

Thus, military expenditure may often be motivated by the desire to defend the government from the threat of rebellion. Collier and Hoeffler, (2006) developed a model of the risk of civil war and used this model to construct a predicted risk for each country and for each time period.

They found that the predicted risk of civil war is significant in explaining military expenditure. Governments indeed anticipate the threat of rebellion and raise military expenditure in an attempt to reduce risk.

Considerably, a government of a country with say a 30% risk of civil war during the coming five years would raise its spending by around 1.2% of GDP relative to an otherwise identical country without such risk

The above motivations for military expenditure have either been to fight a war or to deter it. However, these are not the only motivations for military spending. As with other forms of public expenditure, military expenditure has beneficiaries. In developed countries, these beneficiaries are large industrial companies that produce military hardware.

Developing countries largely import such hardware and so the domestic beneficiaries are predominantly military employees. We might therefore expect that where military employees have a greater influence over government decisions, the government will be persuaded to choose a higher level of military expenditure.

This is a natural tendency because contrarily if professors were in charge of the government, they would probably increase expenditures upon universities. Civil war is an important impediment to development both directly and through its effect on military expenditure.

It is therefore important to determine what actions are important in conflict prevention. While this is usually seen as a purely political matter, empirically the major determinants of the risk of civil war are often economic. This problem is discussed in detail in the next section and subsequent chapters

1.2 Statement of the Problem

Given the interconnectedness of the global economy, financial problems in the United States and the Euro-Zone quickly spread to other countries, which have now turned into a global economic crisis due to interlinkages of financial and real sectors.

This crisis brought many structural flaws and policy constraints to the forefront that hinders more investment and faster productivity growth in the world’s developed and major emerging economies.

For instance, China needs to rebalance its economy from rapid investment-intensive ‘catch-up’ growth towards more a consumption and services-driven economy. India, Brazil, and Mexico face major structural challenges to unlock labour and product markets and create a more efficient resource allocation.

Undoubtedly, globalization has benefitted countries over recent decades through trade and investment flows but unregulated financial sector and dissolute pursuit of rent-seekers have depressed investment flows in productive sectors and reduced productivity growth, making the faster path of global growth more

There are many direct and indirect links between military expenditure, the arms trade, violent conflict and the reduction of available resources for social and economic development. Governments that spend excessive financial, technological and human resources on their militaries divert resources from economic, social and environmental programs.

The military-industrial complex composed of a state’s armed forces, the government, suppliers of weapon systems and services and academic institutions that conduct research on weapon systems and designs- absorbs vast amounts of funding that could otherwise be spent on human security, including the achievements of The Millennium Development Goals. Furthermore, funds reserved for development initiatives are increasingly spent on emergency relief and rehabilitation operations to clean up after violent conflict.

Military investments are underpinned by a belief that a state’s security can be guaranteed by the threat of violence. It is an investment in war and conflict. And while governments use the language of security and protection to justify their excessive investment in military hardware and personnel. It is usually civilians who pay the highest price with their lives, livelihood and rights when states go to war.

Given the numerous crisis facing the planet- economic, environmental, food, water, health, energy- it is imperative to shift money wasted on excessive military spending to human needs and rights. These challenges militarism by calling on governments to stop spending disproportionate financial, technological and human resources on militaries and demands governments to invest in peace

Above all, weapons are tools of violence and repression by those who use them and tools of financial gain to those who make and sell them. The international arms trade is a booming industry and the international systems that were created to uphold international law and secure human rights have been subordinated to the economic and political interest of governments and corporations.

While many states promote themselves as advocates for international peace, justice and security and claim to promote international disarmament, the same states are often leaders in the international arms trade which contributes to fuelling conflicts, human rights violations and disrupting peace processes.

While military expenditures continue to be excessive, investment in conflict resolutions, peacebuilding and development lags far behind. Since the end of the cold war, militarism has been growing in response to an increasingly unstable world, propelling the world even further into tension and war.

Armed conflicts and the constant threat of war and terrorism have become both the cause of and response to this growing military expenditure. War and the threat of war destroy lives, infrastructure and well-being creating a culture of fear, violence and instability.

This impedes development by upsetting social programmes, education, transportation, business and tourism which prevents economic stability, mental well- being and sustainable livelihood. 

The manufacture and use of weapons also prevent sustainable ecological development and preservation, creating unequal access to resources and further impeding poverty reduction initiatives (like in the case of Cameroon right now).

The continued investment in militarism does not make the world safer. Weapons cannot address the main threats people all over the world are facing today such as natural disasters, increase food prices, lack of adequate health care, education, and a clean environment. Yet these threats are aggravating arms races and weapons development.

Stockholm International Peace Research Institution (SIPRI) has warned that growing competition for natural resources may lead to increased military spending as a means of protecting resources from internal or external threats while resource revenues are often a source of funding for arms purchases.

1.3 Research Question

1.4 Main Research Question

  • Does military expenditure contribute significantly to the economic growth of Cameroon?

1.5 Specific Research Question

What is the relationship that military expenditures have on the economic growth of Cameroon?

Is there any bidirectional relationship between military expenditures and economic growth?

1.6 Objective of the Study

1.7 Main Objective of the Study

The main objective of this study is to explore military expenditure and its influences on the economic growth of Cameroon between the periods 1990-2018.

1.8 Specific Objectives of the Study

The specific objectives are to;

Examine the bidirectional relationship between military expenditures and economic growth.

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