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One of the most important questions rising out of the War on Terror and the end of the Cold War is how changes in a country's defense spending will affect its economic performance. Despite the significant amount of work on the defense-growth relationship, a consensus has failed to be reached within the literature as to whether a relationship does exist, its direction, and how it should be modeled. In this dissertation, the defense-growth relationship is investigated by looking at the effect of changes in the defense sector's human capital investments on growth. After theoretically deriving a human capital based model, the model is empirically tested with U.S. data for the time period 1949 to 2009. By doing so, previous scholarship on the defense-growth relationship is advanced by contributing to the theoretical foundation and theoretically deriving a model which uniquely captures the on-the-job training that enlisted soldiers and officers receive. The results show that the sector's investments have a positive effect on the economic growth of the United States. This effect is both direct and indirect. Directly, the sector's investments influence the economy's growth rate as a form of on-the-job training. The results show that approximately 18.9\% of economic growth can be attributed to the investments.Indirectly, they influence the production of a military good, which further influences general production. According to the calibrated parameters, a 1\% increase in the military good is expected to produce a 0.034\% increase in total economic output.
defense sector, Defense spending, economic growth, military output, United States
Date of Defense
July 22, 2011.
A Dissertation submitted to the Askew School of Public Administration and Policy in partial fulfillment of the requirements for the degree of Doctor of Philosophy.
Includes bibliographical references.
Robert J. Eger, III, Professor Directing Dissertation; Milton H. Marquis, University Representative; Frances S. Berry, Committee Member; James S. Bowman, Committee Member; David S. T. Matkin, Committee Member.
Florida State University
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