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The Economics of War: Militarization and Growth in an AK Economy

Arpan Chakraborty

Abstract

This paper analyzes the macroeconomic consequences of military spending and militarization within a dynamic growth framework. Building on a Keynesian goods-market model, we examine how the allocation of government expenditure between civilian and military sectors affects capital accumulation and technological progress. Military spending generates opposing effects: it stimulates aggregate demand and may support innovation through defense-related research, but it also crowds out civilian investment and creates structural rigidities. We formalize these mechanisms in a stylized endogenous-growth model in which productivity depends on the degree of militarization, producing a non-linear relationship between the military burden and long-run growth. Calibrated simulations show that moderate levels of military spending can temporarily support growth, whereas excessive militarization reduces long-run development. We further illustrate the asymmetric growth costs of conflict using a simple two-country war simulation between an advanced economy and a sanctioned middle-income economy.

The Economics of War: Militarization and Growth in an AK Economy

Abstract

This paper analyzes the macroeconomic consequences of military spending and militarization within a dynamic growth framework. Building on a Keynesian goods-market model, we examine how the allocation of government expenditure between civilian and military sectors affects capital accumulation and technological progress. Military spending generates opposing effects: it stimulates aggregate demand and may support innovation through defense-related research, but it also crowds out civilian investment and creates structural rigidities. We formalize these mechanisms in a stylized endogenous-growth model in which productivity depends on the degree of militarization, producing a non-linear relationship between the military burden and long-run growth. Calibrated simulations show that moderate levels of military spending can temporarily support growth, whereas excessive militarization reduces long-run development. We further illustrate the asymmetric growth costs of conflict using a simple two-country war simulation between an advanced economy and a sanctioned middle-income economy.
Paper Structure (16 sections, 21 equations, 2 figures, 3 tables)

This paper contains 16 sections, 21 equations, 2 figures, 3 tables.

Table of Contents

  1. Introduction
  2. Literature and Conceptual Framework
  3. Short-Run Aggregate Demand and Military Expenditure
  4. Aggregate Demand and Military Expenditure
  5. Long-run Dynamic Theory of Militarized Growth
  6. Capital Accumulation in an AK Framework
  7. Military-Induced Innovation and a Non-Linear Growth Function
  8. Calibration and Parameter Choices
  9. Simulation Results for a Single Economy
  10. A Two-Country War Model
  11. Theoretical Structure
  12. Calibration: United States and Iran
  13. Peace and War Scenarios
  14. Growth--Militarization Profiles by Country
  15. Interpreting the Macroeconomic Costs of War
  16. ...and 1 more sections

Figures (2)

  • Figure 1: Calibrated relationship between the military burden and the long-run growth rate. Note: theoretical simulation based on Equation \ref{['eq:g_calibrated']}.
  • Figure 2: Simulated growth--militarization profiles for the United States and Iran. Note: theoretical simulation based on Equation \ref{['eq:gi']} with $d_i = 0$. Vertical lines mark the calibrated peacetime (dotted) and wartime (dash-dotted) burdens.