This paper presents an endogenous growth model to examine how a government's resource allocation between the defense and non-defense sectors will govern both economic growth and social welfare. We demonstrate that there exists an optimal defense expenditure share that maximizes the economic growth rate, but this rate is smaller than the welfare-maximizing share. This result can be viewed as a possible vehicle to explain why in many developing countries arms limitation and disarmament negotiations usually have low performance (even failing). (C) 2002 Elsevier Science B.V. All rights reserved.
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JOURNAL OF DEVELOPMENT ECONOMICS Volume: 68 Issue: 2 Pages: 443-454
