The Role of Institutions and the Abundance of Natural Resources on the Relationship between Militarization and Economic Growth: A Study of Developing Countries with the Introduction of the Global Militarization Index (GMI)

For a long time now, the economic effects of military spending have been one of the most controversial topics in the literature of defense and peace economics. The majority of empirical studies in this field show the negative or insignificant effect of military spending on economic growth in developing countries. But more recent empirical studies show that the existence of external factors such as threats, an abundance of natural resources, and high-quality institutions can indirectly increase economic growth in these countries through military spending and partially compensate for the direct negative effects of military spending on economic growth. In this regard, this article has tried to investigate the role of institutional quality and abundance of natural resources in the relationship between militarization and economic growth in developing countries during the period of 2000-2018 using the dynamic panel data approach. For this purpose, the Global Militarization Index (GMI) and the Generalized Method of Moments (GMM) have been used. The empirical results show that the effect of militarization on economic growth in developing countries is negative and significant. However, the interactive effect of institutional quality and militarization, as well as the interactive effect of abundant natural resources and militarization on economic growth in these countries is positive and significant. This means that militarization in developing countries can increase economic growth in the presence of good institutions and an abundance of natural resources. Also, by separating the studied countries into two categories of countries with relatively better and weaker institutions, it has been shown that militarization from the channel of abundant natural resources increases economic growth in countries with relatively better institutions, while militarization from the channel of abundant natural resources has a negative and significant effect on economic growth in countries with relatively weaker institutions.