ABSTRACT
This chapter describes some of the major theoretical linkages between defense expenditure and economic growth and development. It provides a broad synoptic perspective on conceptual linkages between defense expenditure and economic growth and well-being. Two broad categories of connections between defense spending and economic growth are discussed. These are aggregate-supply-side linkages, and connections related to aggregate demand. Much of the discussion in the literature on the subject deals with what may be called aggregate-supply considerations, which typically deal with defense spending in terms of its "opportunity cost" or the alternatives that are sacrificed. If defense spending lowers aggregate investment and if, as Saadat Deger suggests, new technology is "embodied" in capital, technical progress and economic growth could be adversely affected by defense expenditure. In a more general perspective, defense spending by one country may constitute a negative externality if such spending makes others feel more threatened or less secure and impels them to increase their own defense expenditures.
