DTIC ADA529440: Defense Expenditures and Savings in Pakistan: Do Allocations to the Military Reduce National Savings?

19 Pages·1.6 MB·English

by  Defense Technical Information Center

DEFENSE EXPENDITURES AND SAVINGS IN PAKISTAN:
DOALLOCATIONSTOTHEMILITARYREDUCENATIONALSAVINGS?
RobertE.Looney
NavalPostgraduateSchoolMonterey,California
1.Introduction
A prevalent theme in the literature on the economic impacts associated with defense
expendituresstre9sesthedetrimentaleffectsoncapitalformation. Deger' hassuggested
thatcapitalformationinthedevelopingcountriesmaybeconstrainednotonlyornecessarily
byashortfallinsavingsduetohighmilitaryspendingbut(perhapsmoreimportantly)bya
reductionin absorptivecapacitytoutilizetheavailablesavingsas aresultofthehypoth
esizedunfavorableimpactofmilit?ryspendingonpublicfundingfor human resources.2
WhileDegerpresentssomeempiricalevidencebasedonalargesampleofdevelopingto
supportthisview,thelimitationsinherentcrosssectionanalysispreventusfromdrawing
anybroadgeneralizationsastothenatureofthedefense/savingsrelationship.Infactone
could logically argue that military expenditure might force governments to increase
taxationanddomesticsaving,partofwhichcanbeusedforcapitalformation;itmightfoster
human capital bytraining and modernizing people; it maycreate effective demand and
reduce excesscapacity.
Ultimately whether or not defense expenditures reduce or increase (or are neutral)
domestic savings can only be resolved through empirical testing. The purpose of this
paperistoassessthelinksbetweendefenseexpendituresandsavingsinPakistan.Inthis
regard,Pakistanservesasanidealc~sestudybecauseoftheavailabilityofextensivedata
onthecountry'ssavingsrates.Havedefenseexpendituresreducedthatcountry'salready
low savingsrates? Istheimpactofdefenseexpendituresonsavingsdifferentthanthat
ofothertypes ofgovernmentexpendituresand ifsowhat manner?
2. PatternsofDefenseExpendituresand Savings
Pakistan's savingsefforts are lowbydeveloping country standards. Infact, saving asa.
fraction oftheGrossNationalProduct(GNP) isoneofthelowestamongthedeveloping
countries.Thecurrentsavingrateofabout14percentofGNPfaresbadlywith23percent
forotherlowincomedeveloping countries.3
1.SeeSaadetDeger,MilitaryExpendituresinThirdWorldCountries:TheEconomicEffects(London:Routledge'
.&KeganPaul,1986). .
2.SteveChan,"Defense,Welfare,andGrowth:Introduction"inSteveChanandAlexMintz,Defense,Welfareand
Growth:PerspectivesandEvidence(London:Routledge, 1992),pp.4-5.
3.Severalgoodcomparativestudiesexist.Seeforexample:MaxwellJ.Fry,"Saving,FinancialIntermediationand
EconomicGrowthinAsia"AsianDevelopmentReview,vol 2,no. 1(1984),pp. 82-91;MaxwellFry"Domestic
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1. REPORT DATE 3. DATES COVERED
1995 2. REPORT TYPE 00-00-1995 to 00-00-1995
4. TITLE AND SUBTITLE 5a. CONTRACT NUMBER
Defense Expenditures and Savings in Pakistan: Do Allocations to the
5b. GRANT NUMBER
Military Reduce National Savings?
5c. PROGRAM ELEMENT NUMBER
6. AUTHOR(S) 5d. PROJECT NUMBER
5e. TASK NUMBER
5f. WORK UNIT NUMBER
7. PERFORMING ORGANIZATION NAME(S) AND ADDRESS(ES) 8. PERFORMING ORGANIZATION
Naval Post Graduate School,Monterey,CA,93943 REPORT NUMBER
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SAVINGSANDDEVELOPMENT-No.2-1995-XIX
AbriefexaminationofthepatternsofsavingsandpublicexpendituresinPakistan(Table
1)doesnotsuggestthat(atleastsince1973)defenseexpenditureshaveplayedamajor
role in loweringthecountry'sdomesticresources:
i.Defenseexpendituresappeartohavestabilizedataround7percentofgrossdomestic
product,whereasnon-militaryexpendituresincreasedfrom9.6percentofGDPin1973to
17.8percentin 1989.
Table1
Pakistan:~allemsofSavingsandGovernmentExpenditures,1973-1991
(percentage'ofGrossDomesticProduct)
Year Savings Expenditures
Private Public Gross Gross Military Non-
Domestic National Military
1973 11.26 -0.46 13.47 10.79 7.02 9.62
1974 7.27 -0.15 9.63 7.12 6.83 9.89
1975 6.56 -0.14 7.37 5.99 6.75 10.81
1976 9.45 0.81 10.79 10.26 6.22 10.95
19n 8.90 2.45 -22.63 11.36 6.04 10.36
1978 12.67 1.80 8.81 14.48 5.82 11.64
1979 11.17 1.07 7.12 12.24 6.20 12.39
1980 11.49 2.20 7.79 13.69 6.23 11.31
1981 10.97 4.16 9.26 15.12 6.37 12.82
1982 10.95 3.32 8.32 14.27 6.98 10.09
1983 15.73 1.27 8.46 17.00 7.39 11.98
1964 13.03 2.02 7.70 15.06 7.31 12.37
1985 12.55 0.38 6.28 12.93 7.43 12.39
1986 13.18 1.71 10.95 14.89 7.55 13.49
1987 16.48 0.49 13.86 16.98 7.68 13.95
1988 12.30 1.33 12.45 13.63 7.20 16.22
1989 13.87 0.21 12.63 14.08 7.08 17.80
1990 12.32 1.n 13.23 14.09 7.14 16.08
1991 12.01 1.99 14.55 13.99 6.85 15.~
Source:WorldBank
ResourceMobilizationinDevelopingAria:FourPolicyIssuesAsianDevelopmentReview,vol.9,no1(1991),pp.
15-39;andGrahamJ.Abbott,"NationalSavingandfinancialDevelopmentinAsianDevelopingCountries"Asian
DevelopmentReview,vol2no.2(1984),pp.1-22.
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