The Opportunity Costs of Military Expenditure

The Opportunity Costs of Military Expenditure

Mainak Bhattacharjee (The Heritage College, India) and Debashis Mazumdar (The Heritage College, India)
DOI: 10.4018/978-1-5225-4778-5.ch015
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The defense or military expenditure is a vital necessity to any nation insofar as the roles of internal peace and immunity against foreign aggression in ensuring progress of a nation in all relevant fronts are concerned. In this chapter, it has been observed that the relationship between military expenditure and the growth rate GDP is nonlinear in the sense that at first with increase in the military expenditure the growth rate rises and after reaching the peak it declines with the further increase. There are also significant opportunity costs of military expenditure both in terms of GDP and economic development as a step-up in the military expenditure leads to the decline in the other forms productive expenditures like that in health, education, infrastructure inter-alia. This implies the necessity of military expenditure needs to be lowered which can be made possible by improving international harmony and imparting more bonhomie among the nations particularly amongst those which are close neighbors.
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Objectives Of The Study

The present study aims:

  • 1.

    To highlight on the nature of the relation between military expenditure intensity and the growth in GDP.

  • 2.

    To enumerate the extent of opportunity cost imposed by the military expenditure in terms of GDP and the level of economic development, given the trade-off between military expenditure and other forms of expenditure like those on health and education.



The present analysis rests on the sample of 158 countries observed over the period spanning from 1990 to 2015 and is primordially based on the regression approach where we have used both linear and nonlinear regression models as what follows.

In order to unfold the pattern of relationship existent between military expenditure and GDP growth we have employed two models with Annual Growth rate of GDP (gdpgr) as the dependent variable and Military Expenditure as the percentage of GDP(milexp) as the independent variable as and u as the structural error:

Next, we move to looking for the degree of opportunity cost associated with military expenditure with respect to the GDP and level of economic development in the sense that how much would have been the net increase in GDP if the military expenditure as proportion of GDP was lessened by 1 percent and reallocated to health and education and for economic development what would be the possibility of being in the higher rungs of economic development if the same reallocation was made.

Now to estimate the case of opportunity cost measured in terms of GDP we have fitted a log linear regression model with log transformed GDP (lngdp) as the dependent variable and expenditures on health and education as the proportion of GDP (hexp and eexp) as the independent variables as described below:


The opportunity cost of military expenditure can be evaluated with the help of the estimated parameters each of which indicated the elasticity of GDP with respect to the corresponding independent variable.

Key Terms in this Chapter

Military Expenditure: The sum total of expenditures on all three armed forces—army, navy, and air force—by central government including peace keeping.

Health Expenditure: Total health expenditure is the sum of public and private health expenditure. It covers the provision of health services (preventive and curative), family planning activities, nutrition activities, and emergency aid designated for health but does not include provision of water and sanitation.

Economic Development: The phenomenon of high per capita income along with an equitable distribution of income, high literacy rate, low mortality rate, and low level of poverty.

Gross Domestic Product: The market value of all final goods and services produced in the domestic territory of a country in a given period of time.

Opportunity Cost: The cost incurred due to the loss of opportunity or the cost in terms benefits foregone from the next best alternative use.

Educational Expenditure: Total general (local, regional, and central) government expenditure on education (current, capital, and transfers). It includes expenditure funded by transfers from international sources to government. Public education expenditure includes spending by local/municipal, regional, and national governments (excluding household contributions) on educational institutions (both public and private), education administration, and subsidies for private entities (students/households and other privates entities).

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