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J. Paul Dunne and Nan Tian

The literature on military spending and growth has become extremely large and diverse and has reached no clear consensus. This lack of consensus should not be unexpected, because there are a number of issues that make the empirical analysis of the relationship difficult to undertake and make it difficult to identify the particular impact of military spending on growth. Some of these issues have had relatively little attention in the literature. The historical context can affect the military spending and growth relation, so there is no reason not to expect different results for different periods. There are various theoretical perspectives that can be used in any analysis and numerous channels through which military spending can affect growth, which means that studies can differ in how they specify the models. In estimating models, a range of econometric techniques have been used, which can affect the results. There also remain issues of identification that present problems for empirical analysis. The observed correlation between output and military expenditure is likely to be negative if the system is driven by strategic shocks and positive if it is driven by economic shocks. Improved military spending data and the existence of some shocks, such as the end of the Cold War, is helping in dealing with identification, but it still remains a concern. Overall, more recent studies show that, in general, it is much more likely that military spending has a negative effect on economic growth than was evident in the past. The issues involved in undertaking any empirical analysis on military spending and growth mean that the debate is likely to continue.


Dwight David Eisenhower delivered one final address to the American public on January 17, 1961, as he prepared to step down from the U.S. presidency. Often remembered as an inarticulate public speaker, Eisenhower surprised his audience with his clear warning that “in the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex.” Eisenhower’s words resonated with both his audience and subsequent generations because he gave voice to the growing level of popular anxiety over whether armaments’ increasing importance to national security would ultimately endow defense firms with a degree of power incompatible with liberal democracy. Although Eisenhower’s concerns about defense firms’ antidemocratic potential echoed those of policymakers and scholars since the First World War, Eisenhower’s formulation of the military-industrial complex problématique followed on the heels of earlier analytic models—notably the “merchants of death” and “garrison state” hypotheses—and preceded later rearticulations, such as that of the “iron triangle.” It is possible now, with a century of perspective on this literature, to assess which hypotheses about defense firms’ deleterious impact on society and government have been borne out by subsequent events and which have not. Within this context, many of the worst fears embodied in the earlier theories have not been borne out by subsequent events. Defense firms did not “cause” wars as per the merchants-of-death hypothesis, and democracy did not give way in states where it already existed to the authoritarian rule of “specialists of violence.” Nonetheless, the core insight of the military-industrial complex and iron triangle schools of thought—that defense industries and their allies in the military and politics will act as an interest group to promote procurement projects—has proven robust. The way that these dynamics occur, however, varies from state to state as a function of their institutions. Even though the production of armaments by defense firms headquartered in one’s state exercises a distorting effect on national politics and military procurement, few states can escape this dynamic. The national security advantages of greater supply security and enhanced military adaptation, combined with the fear that once abandoned, defense-industrial capabilities cannot be quickly reconstituted, compels most states that can produce armaments to do so. A military-industrial complex, of some form, is thus a fatality for the modern state.