Evaluating the trade‐off between military spending and investment in the United States

Abstract

Using tests of a single equation model and cointegration techniques, this paper finds no evidence of a long run trade‐off, and some evidence of a short‐run trade‐off, between military spending and investment in post‐World War II United States data. The short‐run trade‐off is confined to the 1949–1971 period, and may be the result of the sharp expansion and contraction of military outlays in connection with the Korean and Vietnam Wars. In addition, cointegration techniques are used to identify a possible long‐run trade‐off between military spending and consumption.