ABSTRACT
This chapter presents a neoclassical model of defense spending and economic growth. The incorporation of technological change allows the proposed theory of defense spending and economic growth to be comparable to the neoclassical theory of economic growth which, as discussed by R. M. Solow, pays special attention to the role of technological change. The economy is assumed to have two sectors: defense and civilian. The defense sector is postulated to generate externalities that effect the civilian sector. Improvements in the rate of technological change in the economy will increase the economy's growth rate, however the defense sector may act as somewhat of a drag, slowing down the effects of technological change depending on the signs of the defense size and spending effects. Feder's theoretical framework and its extensions were used by H. Sonmez Atesoglu and Michael J. Mueller to describe the connection between defense spending and economic growth in the United States.
