growth and defense pooled estimates for the nato alliance 1951 1988 in two provocative and influential contributions emile benoit 4 5 uncovered a net positive association between defense spending and economic growth for 44 less developed countries ldcs during the 1950 65 period apparently a larger defense burden as measured by the share of national income devoted to defense may have promoted growth for these countries this finding was controversial and generated an extensive literature that either found fault with benoit s methodology or else investigated the relationship between growth and defense with alternative methodologies one such methodology relied on an aggregate production function to derive an equation for the sources of growth owing to technological change labor growth investment productivity differences among sectors and externalities this supply side approach was associated with feder 13 and ram 22 when a feder ram model was used researchers typically discovered either a small positive effect or else no impact of defense on growth except for alexander 1 the feder ram approach has been applied to large cross sections of ldcs to cross sections of ldcs and developed countries or to individual countries over time the purpose of this paper is fivefold first we extend the three sector feder ram model to allow for the influence of defense spillin externalities as the defense expenditures of a nation s allies affect the nation s own defense and civilian sectors in either a positive or negative fashion spillin externalities can stem from input complementarity or substitutability procurement practices joint ventures or operational considerations second we check the data for unit roots and when appropriate cointegration these tests help us to avoid a dynamic misspecification third we estimate a three sector feder ram growth equation for each of ten nato allies for the 1951

the impact of military burden on long run growth and welfare abstract 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

modeling the defense growth nexus in guatemala summary the defense growth nexus is investigated empirically using longitudinal data for guatemala and allowing the effect of defense spending on growth to be nonlinear using recently developed econometric methods involving threshold regressions evidence of a level dependent effect of military expenditure on gdp growth is found a positive and significant externality effect of defense spending prevails for relatively low levels of defense spending and becomes negative albeit insignificant for higher levels

empirical studies of financial innovation lots of talk little action this paper reviews the extant empirical studies of financial innovation adopting broad criteria we could find only somewhat more than two dozen studies and since some financial innovations are examined by more than one study they cover only seventeen phenomena especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation e g regulation taxes unstable macroeconomic conditions and ripe technologies that have been advanced in descriptive articles we offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare among our suggested culprits is an absence of accessible data we urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers

the role of financial innovation in raising capital evidence from deep discount debt offers abstract we investigate the market s reaction to original issue deep discount oid bonds which are issued at prices well below par and with coupons set below the market rate until july 1982 oid debt offered large tax advantages before that date stock price responses to announcements of oid debt are significantly positive in contrast to the negative albeit insignificant responses associated with par debt announcements no stock price gains are observed for oid debt issued after the tax advantages are removed we conclude that in 1981 82 opportunities provided by financial innovation offset the negative information effects typically associated with debt financing announcements

economic growth and the defense burden in africa and latin america simulations from a dynamic model since e benoit first provided evidence of a link between the rate of economic growth and defense spending a number of scholars have reported their research on the subject their results have been varied some concluding the relationship is positive others concluding the opposite recently some have argued that no general and significant link exists for less developed countries ldcs and have suggested that the varied results are due primarily to varied specifications sample periods and differences among countries 2 s chan goes further by suggesting that researchers deemphasize the search for universal links and concentrate on time series as opposed to cross section analysis he also recommends that explanations of the defense spendingeconomic growth link take into account among other things a country s capacity utilization total foreign receipts and fiscal and monetary policies 3 the point of departure for the research reported here is a paper by r faini p annez and l taylor hereafter faanta 4 their analysis concludes that higher defense burdens are associated with lower growth rates across countries however i will argue that they have either misstated or misinterpreted their primary result and furthermore that there are some serious problems with their analysis and the underlying model these problems aside the faanta model either already includes or can be respecified to include most of the features recommended by chan therefore i will estimate a significantly modified version of their model for african and latin american countries after attempting to replicate their results for these two regions simulations of my model lead to the conclusion that maintaining a larger defense

military expenditures and economic growth in less developed countries an augmented model and further evidence a study of the impact of military expenditures on economic growth and development examines the differences in the results of previous studies which led to contradictory conclusions the authors find that these differences are due to sample variations specificational choices and the different time periods examined the data indicate that there is no consistent statistically significant connection between military spending and economic growth augmentation of the models suggests that military expenditures neither help nor hurt economic growth to any significant extent 2 tables

sizing up the peace dividend economic growth and military spending in the united states 1948 1996 with cold war expenditure no longer needed our gigantic government expenditures abroad could be reduced and our international deficit would probably disappear almost overnight with the dollar no longer overvalued militant expansion of monetary and credit policy could stimulate capital formation or investment to utilize the resources released from armament production america s potential and actual growth rate far from depending upon war preparations would be markedly increased by an end to the cold war paul samuelson economics an introductory analysis

the eurobond market and corporate financial policy abstract on average significant positive abnormal returns are associated with eurobond issues during the period 1975 1985 the cross sectional and time series distributions of the abnormal returns are consistent with the hypothesis that impediments to the adjustment of asset supplies to new demand conditions are large enough to create profitable financing opportunities for firms our analysis demonstrates how profitable financing opportunities can persist on the eurobond market and when they are most likely to arise

defense spending economic structure and growth evidence among countries and over time there is no way of telling from economic theory whether a greater military effort will slow down or accelerate output growth the results of a single empirical study have been used to support the widely held belief that in poor countries a high share of defense in gdp is associated with a high growth rate this paper shows that as is often the case such conventional wisdom is wrong across countries a greater defense burden is associated with slower growth in a regression equation estimated for 69 countries over some or all of the period 1952 70 an increase of 10 percentage points in the defense burden share of defense in gdp leads to a reduction of annual growth by 0 13 a nontrivial loss as we discuss in detail below growth retardation to approximately the same extent also is recorded in regional regression estimates though precise coefficients differ from area to area besides slowing the growth rate a changing defense burden has other macroeconomic effects for the same sample of countries and time period increases in military spending are associated with lower saving and investment shares in gdp a greater tax burden and a shift in economic activity from agriculture including food production toward the manufacturing sector when estimated econometrically the extent to which defense spending replaces investment is consistent in magnitude with the growth rate reductions mentioned above in describing these results more thoroughly in section i we review informally the channels through which arms spending can affect the growth rate and present a simple formal model in section ii the resulting reduced form equation is estimated empirically in section iii with the findings summarized above to measure other effects of military outlays on the economic structure we go on in section iv to incorporate the defense burden into the regression equations and data

alternative econometric approaches for analysing the role of the financial sector in economic growth time series evidence from ldcs abstract the study determines and analyses the effects of financial intermediation on the growth of real gdp in ldcs by employing annual data for 71 countries over varying periods that generally span the 1960s and 1980s based on the modified version of the orthodox model framework and an entirely new model framework that recognizes the external effects of the financial sector on the real sector as well as effects of the financial sector on the productivities of factor inputs engaged therein we estimate regression equations for each country our findings are as follows a financial intermediation promotes economic growth in about 85 of the countries b as compared with factors that have often been emphasized in the literature viz export expansion capital formation ratio and labour force growth as important growth promoters financial intermediation is practically at par with export expansion and capital formation ratio and superior to labour force growth as partners in promoting economic growth c the growth promoting effects of financial intermediation are more predominant in low income than in high income ldcs and d the growth promoting effects of financial intermediation are practically invariant across the various regions of the globe

financial innovation the last twenty years and the next the word revolution is entirely appropriate for describing the changes in financial institu tions and instruments that have occurred in the past twenty years the major impulses to successful financial innovations have come from regulations and taxes the outlook for the future is for a slowing down of the rate of financial innovation but much growth and improvement are still in prospect

defence spending economic growth and temporal causality evidence from taiwan and mainland china 1952 1995 this paper uses a cointegration analysis and a vector autoregressive model var to examine the causal relationship between defence spending and economic growth for taiwan and mainland china over the period 1952 1995 it is found that these two variables are not cointegrated for both countries studied the results of the granger causality tests suggest bidirectional granger causality feedback between defence spending and economic growth for taiwan unidirectional granger causality running from economic growth to defence spending for mainland china and unidirectional granger causality running from taiwan s defence spending to mainland china s defence spending for cross country studied these results further indicate that there exists no arms race between two countries from both sides of taiwan strait furthermore impulse responses and variance decompositions are incorporated into the analysis the results from the impulse responses and variance decompositions tell a similar story

arm breaking consumer credit and personal bankruptcy the consumer credit transaction is analyzed as a contract which provides insurance as well as present consumption for the borrower creditors remedies such as arm breaking are shown to facilitate provision of insurance forgiveness of debts when lenders cannot monitor outcomes alternatively if outcomes are observable but lenders do not ex ante know the risk associated with each borrower the market may generate an excessive amount of arm breaking and agreements to forgo discharge following bankruptcy as low risk borrowers signal their characteristics suggesting that government limitations on such provisions might be efficient the secured credit transaction is shown to be a complex contract which attempts to provide efficient repayment seller incentives for performance and mitigation following default and insurance for the borrower garnishment and discharge of debts following bankruptcy are also considered

interest rate ceilings and the role of security and collection remedies in loan contracts neela d manage collateral or other security for personal loans and restrictions on creditor remedies for the collection of debts have varying effects on the price and quantity of credit which depend in turn on the level of interest rate ceilings we report here on reduced form equations of a supply demand model estimated for five states with different interest rate restrictions interest rate ceilings limit how far lenders can raise loan rates to compensate for expected default losses but restrictions on collection remedies are generally associated with a higher interest rate i introduction the role of collateral in loan contracts has been the focus of many recent studies on credit markets this paper examines the role of collateral in personal loan contracts when government regulations such as usury laws and restrictions on late charges and wage garnishment limit the responses of creditors to increases in default risk special attention is given to the use of the borrower s future income as a form of collateral in personal loan markets and the effect of laws governing garnishment and wage assignment which limit the lender s claim to the borrower s income theoretical studies by barro 1976 benjamin 1978 and harris 1978 discuss the effects of collateral on the interest rate loan size and other features of the loan contract particularly when the collateral has a different value to the borrower and to the lender more recent studies by rea 1984 schwartz 1981 1984 hess 1985 eaton 1986 and hess and knoeber 1987 further analyze the role of collateral in loan contracts hess 1985 in particular evaluates the earlier work done by benjamin 1978 and develops an excellent analysis of the relation between collateral and other terms of the loan such as loan rates and loan size the regulations governing personal loan markets that have been most frequently analyzed are interest rate ceilings and restrictions on the remedies available to creditors attempting to collect on delinquent or defaulted accounts empirical studies by shay 19701 benston 1973 1977 greer 1973 1975 aho et al 1979 barth and yezer 1977 barth et al 1983 manage 1983 and peterson 1979 analyze several personal loan market relationships these studies differ widely in terms of scope type of data used with respect to both geographical coverage and level of aggregation model specification estimation technique and the specific hypothesis being tested this paper demonstrates that the effect of interest rate ceilings depends on the restrictions imposed by other financial regulations and visa versa and that the effect of regulation in turn depends on the specifics of the loan transaction both interest rate restrictions and a number of other factors affecting borrowing and lending decisions vary systematically by state first regulations governing loan contracts differ from state to state interest rate ceilings are set by each state and different laws govern the use of garnishment and wage assignment so that the amount of future income that may serve as collateral also varies creditors in different states thus operate under different rules second there are differences in the risk characteristics of borrowers due to demographic financial and institutional factors which affect the supply decisions of lenders in order to hold these factors constant this paper analyzes cross sections of loans made within a state rather than use a cross section of states this approach differs from previous studies in that it allows regression coefficients to vary across states ii collateral and government regulations collateral is used as an instrument to enforce loan contracts it provides an incentive to repay the loan because the borrower loses the collateral in the event of default theoretical studies generally suggest that a decrease in collateral will increase the costs to the lender of a default and increase the interest rate on the loan

external military threat and the response of the member states of the gulf co operation council gcc the study shows that procurements of traditional arms by two countries have the possibility of moving together over time this is demonstrated with reference to iran and the member states of the gulf co operation council gcc for the period 1961 1996 acquiring arms by the member states of the gcc is shown to be only a response to the perception of their leaders to the external threat posed by iran throughout the varying regimes that have ruled teheran in the light of the recent emergence of macroeconomic problems such as unemployment in the economies of the gcc coupled with the ineffectiveness of the financially exhausting build up of arms as a military deterrent policy one important implication of the study is that the priority of the gcc leaders will have to turn to a more effective deterrent policy such as acquiring nuclear technology rather than engaging in a costly and unsuccessful arab military alliance as experienced in the 1970s

another look at growth and defense in less developed countries lim challenges evidence showing that defense spending encouraged the economic growth of 44 less developed countries ldcs over the 1950 65 periods by reexamining the relationship between defense and growth for 54 ldcs over the 1965 73 period regional analyses cover 21 african 13 western hemisphere 11 asian and 9 middle eastern and southern european ldcs the results show that defense spending was detrimental to economic growth although adverse effects that were marked in africa and the western hemisphere were absent in asia the middle east and southern eurpoe 4 references 2 tables

economic growth and defense spending granger causality abstract this paper uses granger causality to check the assumed exogeneity of military spending relative to economic growth in previous studies of the relationship between economic growth and military spending the test results performed using two measures of military spending consistently show that military spending is not a strongly exogenous variable implying that previous work in this area is flawed

defense spending and economic growth an alternative approach to the causality issue abstract this paper re examines the defense growth causality issue using a 21 country sample and granger causality methods developed by hsiao we find a feedback relationship existx for most countries this implies that neither growth nor defense can be considered exogenous a result suspected by joerding in earlier work but masked by his choice of an arbitrary lag structure

military expenditure spin off and economic development abstract this paper analyses the strategic causes and the economic spin off effects of military expenditure in less developed countries a formal optimising model is used to show that defence burden in ldcs may be analysed principally in terms of strategic factors such as security and threat and is determined relatively autonomous of economic factors given this autonomousness we scrutinise the widely held belief that defence expenditure has a substantial spin off in the form of technological progress r d skill creation effective demand all of which has positive developmental effects econometric evidence for india shows that such claims are exaggerated and economic spin off from defence to development is weak

inference on productivity differentials in multi sector models of economic growth non zero marginal factor productivity differentials between sectors are a key feature of multi sector models of economic growth suggesting the potential for welfare gains through reallocation of resources between sectors however in existing studies inference on the parameter reflecting productivity differentials is inadequate reparameterization of hypotheses relating to the productivity differential parameter allows under the usual assumptions exact finite sample inference to be applied confidence intervals based on this approach applied to existing published studies suggest that many of the inferences on the potential gains in growth from exploiting inter sectoral productivity differences are fragile

an analysis of the impact of interest rate ceilings the first aim of this study is to estimate the interest rates paid for motor vehicle loans the second aim is to identify those potential borrowers most likely to be rationed out of the market by the imposition of rate ceilings rate ceilings constrain the rates paid by successful loan applicants to be no greater than the applicable ceiling level these constraints are dealt with by treating the interest rate paid as a variable truncated at the ceiling level assuming the dependent variable is truncated normal consistent estimates are obtained by employing the maximum likelihood method of hausman and wise

the effect of government regulations on personal loan markets a tobit estimation of a microeconomic model the purpose of this paper is to analyze both theoretically and empirically the effect of selected government regulations on a high risk personal loan market unlike previous studies which have generally relied on a loosely specified theory and then tested this theory with statewide aggregate data our analysis is based on a more tightly specified model for individual loans which is then tested using statewide disaggregated data the empirical results indicate that the regulatory effects are not only significant but consistent with our theoretical microeconomic model the purpose of this paper is to analyze the effect of selected government regulations on a high risk personal loan market this is done by developing a simple model of the supply of and demand for a single high risk personal loan and then using the model as the basis for our econometric analysis due to econometric problems related to the presence of legal rate ceilings on such loans we derive and estimate reduced form equations rather than structural equations however as will be shown the market effects of regulations may still be tested against a priori restrictions 1 the emphasis on individual loan transactions is a distinguishing feature of our study this permits a more accurate assessment of the consequences of regulation for personal loan markets than is possible using aggregate state data see for example greer 18 19 and benston 9 10 11 because regulatory constraints vary with the specific terms of the loan as well as individual borrower characteristics as examples legal rate ceilings typically vary with the amount loaned and the amount that may be garnished generally depends on each borrower s earnings in this type of setting lenders essentially act as multi product firms selling different loan amounts of varying terms to borrowers