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# Eam

1. In a paper presented at the World Bank Anua Conference on Development Economics, Robert McNamara endorsed a proposal made by the Independent Group on Financial Flows to Developing Countries (chaired by Helmut Schmidt) that 'when decisions concrning allocations of foreign aid are made, special consideration be given to countries spending less than 2 percent of their GNP in the security sector." Dennis Healey, the former British defense secretary, was quoted in the Financial [iM (July 12, 1991) as advocating 07 nations to link aid to developing countries to cuts in defense expenditures.

2. World Bankl, Military Expenditures." Report No. SecM91-1563 (December 1991). Washington, D. C.

3. The regional (and full sample) means are unweighted averages of the country MESs. There do not appear to be any unambiguously superior weighing mechanisms; consequendy, only unweighted averages have been presented.

4. However, it is important to note that Iraq and Iran are not in the sample.

S. 1 1988, Saudi Arabia was spending 19.8 -ercent of GNP on the military compared with 8.4 percat in 1969. Honduras experienced a very rapid increase in MES from 2.8 percent in 1982 to 8.4 percent in 1989. Zimbabwe was spending 7.9 percent of GNP on the military in 1989 compared to 3.2 percent by Southern Rhodesia in 1969. However, these are the exceptions. The more typical trend is of a reduction in military expenditures over time. Egypt, which had reached 36.5 percent of GNP in 1974 was down to _4.5_ percent in 1989. Israel was down from 34 percent of GNP in 1973 and 25 percent in 1981 to 9.2 percent in 1989.

6. Some researchers of the relationship between military spending and economic growth attribute significant creation of human capital to the armed services. There are problems with this hypothesis. First, looking at the numbers in the armed forces in most developing countries, it is implausible that the human capital created during military service would significantly change the growth of the civilian economy. It must also be remembered that significant numbers of the more highly trained soldiers are career soldiers whose training does not aid the civilian economy.

7. If threatened governments modify their policies in ways which promote growth, what pattern of policy change would we expect to see in seriously threatened countries? The necessary policy approach to encourage rapid growth is quite well spelled out in the World Dvelopmnt K (1991) in terms of aiding the efficiency of markets, rather than replacing them, and flexible pragmatic policies.

Historically, we find re 4ence that at key points in their modernization, and under conditions of serious external threats, Japad and the countries of Western and Central Europe made these changes in their policies. The political scientist Pempel (1982) describes the policies which Japan used to became a developed country before World War Two: "When Japan was forced to open to Western commerce in 1854, it had to overcome a 250 year history of centralized feudalism.... The Meiji reformers realized that a strong state apparatus, parallel to that of Prussia, was essential if Japan was to develop the "rich country