ABSTRACT
Economic implications of defense spending can be studied from different perspectives. Defense spending cannot contribute to a nation's ability to produce more economic goods and services in the future. Within the Keynesian framework of macroeconomic analysis, government expenditure on goods and services including defense is an important force in the determination of output and employment. More real spending in the military sphere leads to a reduction of funds for production of civilian goods. This basic fact is reflected in high hopes of receiving a "peace dividend" from less spending on defense following the end of the Cold War. A possible beneficial effect of defense expenditure lies in its role in creating effective demand when there is slack in the economy. Treating defense expenditures as autonomous, mainly determined by strategic consideration and threat and security, one can argue that defense expenditures may have developmental side effects.
