Defense Expenditures and Savings in Pakistan: Do Allocations to the Military Reduce National Savings?
Abstract
A prevalent theme in the literature on the economic impacts associated with defense expenditures stresses the detrimental effects on capital formation. Deger has suggested that capital formation in the developing countries maybe constrained not only or necessarily by a shortfall in savings due to high military spending but (perhaps more importantly) by a reduction in absorptive capacity to utilize the available savings as a result of the hypothesized unfavorable impact of military spending on public funding for human resources. While Deger presents some empirical evidence based on a large sample of developing to support this view, the limitations inherent cross section analysis prevent us from drawing any broad generalizations as to the nature of the defense/savings relationship. In fact one could logically argue that military expenditure might force governments to increase taxation and domestic saving, part of which can be used for capital formation; it might foster human capital by training and modernizing people; it may create effective demand and reduce excess capacity. Ultimately whether or not defense expenditures reduce or increase (or are neutral) domestic savings can only be resolved through empirical testing. The purpose of this paper is to assess the links between defense expenditures and savings in Pakistan. In this regard, Pakistan serves as an ideal case study because of the availability of extensive data on the country's savings rates. Have defense expenditures reduced that country's already low savings rates? Is the impact of defense expenditures on savings different than that of other types of government expenditures and if so what manner?
Document Details
- Document Type
- Technical Report
- Publication Date
- Jan 01, 1995
- Accession Number
- ADA529440
Entities
People
- Robert E. Looney
Organizations
- Naval Postgraduate School