IMPACT OF DEFENSE EXPENDITURE ON NIGERIA ECONOMY 1986-2019
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IMPACT OF DEFENSE EXPENDITURE ON NIGERIA ECONOMY 1986-2019
Chapter one
INTRODUCTION
1.1 Background for the study
There is a large body of literature on defence spending and economic growth. However, the direction of the causal relationship between the two remains uncertain. According to studies, defence spending can have a good or negative impact on the economy.
For example, military spending can have a good impact on the economy by increasing aggregate demand or security (Waheeduzzaman and Rahman, 2003)
as well as a negative impact by crowding out investment (Deger, 1986). However, there have been few studies on the direction of the causal effect between defence spending and economic growth.
According to Keynes, defence spending, which is a component of government spending, serves as an injection into the economy and hence has the potential to positively stimulate the economy via multiplier mechanics.
An rise in any of the aggregate demand factors will increase the capital stock in society, resulting in higher profit and possibly increased investment, providing short term multiplier effects and higher growth rates in the aggregate economy.
Benoit (1973, 1978) claimed that increased military spending can boost economic growth by strengthening the workforce’s human capital capacities through educational provisions in which military enterprises can supply valuable skills.
Externalities in defence spending that are vital to economic growth include the provision of road infrastructure that can be used by both the military and civilians (Barro and Sala.i Martins 1995).
On the contrary, considerations imply that there is a negative association between defence spending and economic growth. Levine and Renant (1992) stated that because defence spending is funded by revenue, taxing will not only lower the amount of resources available to the private sector, but will also change relative prices such as real wage and real interest rates, distorting economic decisions.
Furthermore, this unfavourable trend may have an adverse effect on economic growth. Defence spending may therefore discourage not only private investment, but also other government spending that might boost human capital accumulation (Shieh et al., 2002).
Furthermore, defence investment may generate bottlenecks in the demand for highly qualified labour, diverting resources away from civilian R&D activity.
Given the government sector’s low productivity, diverting resources from civilian to military reasons may impair long-term national productivity, technological developments, and progress.
1.2 Statement of Problem
The relationship between government spending and economic growth has sparked ongoing debate among researchers. The government serves two functions: protection (and security) and the supply of certain public goods (Abdullahi, 2000; Yousif, 2000; Nurudeen and Usman, 2008).
The protection function consists of establishing the rule of law and enforcing property rights. This reduces the risk of criminal activity, protects life and property, and protects the nation from external threats, among other things.
Some experts claim that more government spending on socioeconomic and physical infrastructure promotes economic growth. For example, government spending on health and education boosts workforce productivity and increases national production growth.
Similarly, spending on infrastructure such as roads, communications, and power reduces production costs while increasing private sector investment and company profitability, so promoting economic growth.
Scholars such as Keynes (1936), Ram (1986), Barro (1990), Sachs (2006), Ranjah and Sharma (2008), and Cooray (2009) agree that increased government spending promotes economic growth.
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