Defense Spending and Economic Growth in South Korea: The Indirect Link
| Author | Uk Heo |
| DOI | 10.1177/0022343399036006006 |
| Published date | 01 November 1999 |
| Date | 01 November 1999 |
| Subject Matter | Articles |
Defense Spending and Economic Growth in South Korea:
The Indirect Link*
UK HEO
Department of Political Science, University of Wisconsin–Milwaukee
journal of
peace
R
ESEARCH
© 1999 Journal of Peace Research
vol. 36, no. 6, 1999, pp. 699–708
Sage Publications (London, Thousand
Oaks, CA and New Delhi)
[0022-3433 (199911) 36:6; 699–708; 011132]
Due to the lingering food crisis, speculations about the collapse of the North Korean regime have inten-
sified in recent years. The collapse of the North Korean regime is expected to generate a tremendous
economic burden on the South Korean economy. Moreover, the current economic crisis in South
Korea requires a tight fiscal policy. Thus, on the basis of the peace dividend argument, some suggest
that South Korea should reduce its military expenditures to prepare for the upcoming extra economic
burden. For this reason, the economic effects of defense spending on growth in South Korea are a sig-
nificant concern for policymakers as well as scholars. I examined the economic effects of defense
spending on growth in terms of time and magnitude by investigating the direct effects as well as the
indirect impacts (via investment and export) of military spending on economic growth. A three-
equation econometric model was specified and empirically tested using South Korean data for
1954–95. The findings of this study reveal that the overall economic effects of defense spending on
growth are negative although they seem to be indirect or delayed.
Defense Spending and Growth
In my earlier study (Heo, 1996) concerning
the economic effects of defense spending on
growth in South Korea, I suggested that
future research should investigate the indi-
rect effects of defense spending on growth
via investment or exports. In this article, I
refine my earlier work by testing some indi-
rect effects of defense spending on growth in
South Korea.
This study furthers my earlier work in
two ways. First, in terms of data, my earlier
study used constant-dollar data from the
International Comparisons Project (Summers
& Heston, 1991) for economic variables and
the SIPRI Yearbook for defense spending for
the period 1954–88. However, Sen (1995)
pointed out that using a US constant-dollar
value is problematic because of the inade-
quate comparability of exchange rates. In
other words, the fluctuation of exchange
rates may affect the value of military expen-
diture or other economic variables even
when the actual values are the same. Thus,
he argued that constant value of local cur-
rency is appropriate to accurately measure
the economic effects of defense spending on
growth. This study employs constant value
of the South Korean local currency (won)
* I would like to thank Alex Mintz, Karl DeRouen Jr,
Jongryn Mo, George Totten, WheeGook Kim, HeeMin
Kim, Wonmo Dong, David Curtin, and Michael Brzoska,
Associate Editor of JPR, for their helpful comments and sug-
gestions on various versions of this article. Any remaining
errors are mine. An earlier version of this article was pre-
sented at the Annual Meeting of the American Political
Science Association, Washington DC, 28–31 August 1997.
The data used in this study can be obtained from:
http://www.uwm.edu:80/People//heouk/heojpr99.txt.
699
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