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8. The best way to measure the threat from naighbors' military expenditure seems to be NMES, the average of their MES's. There is also some evidence that countries respond to threats in terms of shares of GNP spent rather than dollar values (McKinlay, 1989, Thkir Wozld Militak Eendi ) One could find rationales for this response pattern in terms of smaller countries indicating a willingness to fight and thus inflict costs on a larger country, but they are unable to match expenditures in dollar terms. Furthermore, if the smaller country is not technologically superior, and thus unable to substitute quality of arms for quantity of armed men, diminishing returns may set in fairly soon if the smaller country tried to substitute capital for labor. Whatever theoretical qualms one might have about NMES, it works very well both in the growth regressions and in the regressions of the determinants of MES, Table 10. In contrast to the success of NMES, if we measure the foreign threat as the ratio of foreign military expenditure to home country GNP. the variable is insigmificant. The sample is 71 non-Communist LDCs with over two million p,, .lation for which the 1990/91 World Tablea (World Bank) has data. China was also tried as an addition to the sample set of 71 countries, but this changed nothing. Some of the neighbors of countries in the sample are over two million population, but are not in the sample either because they are not LDCs, they were communist, or the World Tabes do not have data for them - Iran and Iraq for example. The source for MES - SIPR[ Yearbook of World Armaments and Disarmament - had data on most of these countries so they could be included in the calculation of average neighbor's MES - NMES. A secondary source - U.S. Arms Control & Disarmament Agency, World Milit ExIenditures and Arms Transfers allowed filling in a few more.

9. Ihe exogenous and predetermined variables included in the regressions were chosen because they could be expected to influence the growth rate significantly and they are available. The expectation that they would significantly influence the growth rate comes from general theoretical considerations and the literature on growth, especially the author's previous work on the empirical determinants of growth (Landau 1986, 1990). Ihe growth rate of the developed - OECD - countries (GRW) could influence the growth rate of the LDCs in terms of the export opportunities and perhaps also the amount of foreign investment. The change in the terms of trade (CTOT) would influence the returns to an LDC from any given level of exports. The share of oil exports in GNP (OILS) was included because many workers in the field believe major oil exporters can increase MES without a negative impact on growth (Looney).

Per capita product (PCP) is included because of the results in the author's previous work. Allowing for the level of investment in human capital, there is a strong negative relationship between the level of per capita product and the growth rate. There is of course an enormous literature suggesting that debt burdens will slow economic growth both due to the direct impact of the debt service payments and the indirect threat of inflationary or other disruptive government policies if the burden becomes economically or politically unsustainable. Thus the literature predicts a strong negative relationship between the ratio of debt to GNP (DEBTS) and the growth rate. Life expectancy at birth (LIFE) is a proxy for the general level of investment in human capital.

GRW and CTOT are not hypothesized to be basic determinants of long run growth, rather they serve to remove some of the transitory effects on realized levels of production of external conditions. For this reason, they are mean values over the same years as the dependant variable, not lagged.

As indicated above, some of the limited number of regressor we have are proxies for the arguments in equation 1. OILS - the share oil exrorts in GNP - is a proxy for natural resources. We tried the population growth rate, which is a proxy for the growth of the labor force, but it was insignificant. LIFE - life expectancy - is a proxy for the general level of investment in human capital. It is better proxy than education measures. The two most important forms of investment in human