ABSTRACT
Many analysts have argued that the expansion in military expenditures undertaken in the Middle East and South Asia has pre-empted resources capable of contributing to physical capital formation. This chapter analyses whether military expenditures in seven major defense spenders, Algeria, Egypt, Syria, Israel, and Saudi Arabia in the Middle East, and India and Pakistan in South Asia, have been at the expense of physical capital accumulation as well as other macroeconomic aggregates. The major difference between defense expenditures and general government expenditure lies in their respective impacts on real gross capital formation. Because of direct links to indigenous arms industries, the multiplier affect associated with defense expenditures is greater than with other types of government procurement. Pakistan's defense expenditures have been relatively stable, particularly relative to those in the Middle East. Defense expenditures in Pakistan have impacted differently than non-defense government allocations.