Endogenous Growth and Defense Expenditures: A New Explanation of the Benoit Hypothesis

Abstract

This paper develops an endogenous growth model to examine the linkage between military expenditures and economic growth. We adopt the modeling strategy where both the supply side and the demand side effects of national defense are taken into considerations. Our result finds that a rise in military spending tends to stimulate the sustained growth rate, confirming Benoit's famous empirical findings.