Importance The article addresses the influence of European countries' military expenditure on the economic growth. Objectives The purpose of the study is to build econometric models to identify the areas of influence of military expenditures on the economic growth. The information base of the research is the panel data on 38 European countries based on sources from the Stockholm International Peace Research Institute and the World Bank for 1992–2014. Methods The study employs the econometric methods of estimating the panel data models with one-way and two-way fixed effects in the error and the Swamy approach with random coefficients. Results I reviewed empirical studies on economic effects of military expenditures within several theoretical areas. The paper specifies and identifies the Feder–Ram models, the modified Solow model and the model of endogenous growth. A statistically significant effect of military expenditures on economic growth is obtained under the Solow model. The estimation of the effects of military expenditures on economic growth is helpful to determine strategic priorities of European countries’ development, and to justify the amount of military expenditures in budget planning. Conclusions The findings show that five countries, i.e. Russia, France, Great Britain, Germany and Italy have military expenditures, which in 2014 accounted for almost three fourths of total expenditures of all countries in the sample. The share of military expenditures in Russia's GDP from 1998 to 2014 increased 2.1 times. The share of France, Great Britain demonstrates a descending trend. The estimation of the effect of military expenditures on economic growth of European countries is negative, small, and significant only for the modified Solow model.
Keywords: military expenditures, economic development, panel regression, European countries
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