Defensive Economy in the Armed Forces and Its Impact on Iran's Economic Growth

On the one hand, due to strategic location of Iran, financial needs for providing security are broad, although the financial resources of the country to meet these needs are limited. On the other hand, due to the economic sanctions imposed by Western countries and the necessity of execution defense economics as an important dimension of resistant economy, examination of defense expenses and its impact on economic growth of the country is of great importance. This Study evaluates and analyzes the economic impact of defense expenses on economic growth of the country by examining the dimensions of defensive economy over the period 1979- 2001. To this end, a model based on a system of simultaneous equations (SEM) is presented which takes into account the direct effect of defensive expenses as well as its indirect effects on economic growth. The effects of defensive expenses on economic growth of Iran have been reviewed and examined by means of two-stage least squares method (2SLS) for single equate estimations and three-stage least squares method (3SLS) to estimate the system of simultaneous equations. The results indicate that the major causes of Iran's defense expenses are not economic, but strategic (threat of war). Moreover, the direct effect of defense expenses on economic growth and its indirect effects on the trade balance and savings are negative and meaningful.