Abstract
Background: As part of public expenditure, empirical studies on the impact of military/defense expenditure on the economic growth, particularly in the case of a developing country like Uganda remain still abstruse to both policymakers, researchers, and academicians. There is a scanty agreement in this regard today. For the case of Uganda, a country that has had a fair share of its instabilities and wars, the subject of military expenditure and national security becomes a topic of national importance. And although the country has registered some progress in economic growth, hovering at around 5% annually, its military expenditure as a percentage of GDP has also been raising at an average of 2.5%, and it is projected to continue rising if the present uncertainty in the country remains unabated. Thus, in this study, a time series model is estimated to analyze the association between military/defense expenditure (as % of GDP) and economic growth in Uganda for the period 1970 through 2019. By employing the augmented Solow growth model parameterized through the ARDL model, we test the impact of military expenditure on economic growth in Uganda for both short and long-run scenarios.Results: The findings are indicative that military expenditure does affect economic growth in Uganda although the effect is not significant. Also, the impact of security-related factors such as military expenditure by the neighbors, election year, and conflict type on growth rates seem to be mixed in both short and long-run scenarios. In addition the results reveal that a percentage point change in the level and first lag of military expenditure (Milex) is associated with 0.30 and 2.81 percentage point reduction in GDP growth in Uganda. A similar result is reported in (Islam, 2015; Saba and Ngepah, 2019). However, the impact of military expenditure on the economy has been uncertain depending on the role of the expenditure, for instance, according to (D’Agostino et al., 2012) military expenditure can be growth-enhancing if it is meant to create a peaceful environment for businesses to thrive but it can be detrimental if such expenditure is to finance external wars and internal conflicts, where productive resources like labor and capital are lost thus affecting growth. Conclusion: Several take-home points emerge especially on public expenditure regarding the military versus other productive sectors. For instance governments in developing countries should keenly watch over their respective defense budgets and should thus allocate financial resources in tandem with both internal and external threats to the national security of their countries but also in line with resources allocated to other productive investment sectors like health, education and food productivity, such as agricultural sector in case of Uganda which seem to have direct multiplier growth effects. Besides reduction in military expenditure will avoid the crowding-out effect of productive private investment by government. For the case of Uganda, if such alarming defense expenditures are left unabated, Uganda’s previously registered rates of growth may either stagnate or even deteriorate. Thus an urgent solution is needed. JEL Code: E62 & H5
Does international reserve accumulation crowd out domestic private investment?