Accession Number : ADA294241

Title :   Strengthening Economic Performance & Competitiveness in an LDC: The Effects of Military Expenditure in Ecuador,

Corporate Author : AIR FORCE INST OF TECH WRIGHT-PATTERSON AFB OH

Personal Author(s) : Spinetta, Lawrence J.

PDF Url : ADA294241

Report Date : APR 1995

Pagination or Media Count : 72

Abstract : The development of a qualitative framework is combined with statistical results from the construction of quantitative models to provide a robust, integrative approach to describing the relationship between military expenditure (ME) and economic performance in Ecuador. Quantitative models use time-series data to empirically measure direct and indirect effects. ME provides a direct Keynesian stimulus to increase output, but also indirectly crowds out private investment, limiting long-term growth opportunities. A three-stage least square regression is required to satisfactorily model the complex system of simultaneous equations that incorporates GDP growth, private investment, and the military expenditure burden. A multiplier is derived to quantify the net effect of ME on GDP growth. For the case of Ecuador, every 1% increase in ME leads to a 1.484% decline in economic growth. Other models are proposed to measure the effects of ME on the current account, industrial output, market security, and unemployment. These models suggest ME has a negative effect on the current account, provides some impetus for increased production for certain industries, and has a stabilizing effect on market security. The effect of ME on unemployment cannot be determined with any statistical significance. Recommendations are made to modify the Ecuadorian military budget (i.e., to shift allotments away from capital purchases) to help maximize long-term economic gains. Suggestions as to how to achieve these changes given the realities of Ecuadorian politics are also provided.

Descriptors :   *ECONOMIC ANALYSIS, *GROWTH(GENERAL), *STATISTICAL ANALYSIS, *MILITARY BUDGETS, *ECUADOR, STABILIZATION, OUTPUT, MEASUREMENT, INDUSTRIES, POLITICAL SCIENCE, MARKETING, PRODUCTION, SECURITY, COSTS, CONSTRUCTION, ALLOCATIONS, UNEMPLOYMENT, ECONOMIC MODELS, SIMULTANEOUS EQUATIONS.

Subject Categories : Economics and Cost Analysis
      Government and Political Science
      Defense Systems

Distribution Statement : APPROVED FOR PUBLIC RELEASE