Military expenditure and economic growth nexus in the Postreform era of india

The effect of military expenditure on the economy is a controversial area of research among economists. Particularly, in the last four decades, there has been a growing interest in the role of military spending in developing countries. The issue that has received the most attention has been whether military expenditure helps or hinders economic growth. A possible beneficial effect of defense expenditure lies in its role in creating effective demand when there is slack in the economy. Within the Keynesian framework of macroeconomic analysis, government expenditure on goods and services including defense is an important force in the determination of output and employment. On the other hand, military spending cannot contribute to a nation's ability to produce more economic goods and services in the future. More public expenditure in the military sector leads to crowding out of private investment and less investment on public goods like health, education, infrastructure and research and development. Under these circumstances this paper tries to reinvestigate this relationship in India specially in the post reform era. This study finds defense spending is not significantly helping economic growth of India within the time horizon of the study. On the other hand, capital formation is playing a significant role for economic growth of India.