Budgetary Trade-Offs between Military and Education/Health Expenditures in Developing Countries : A Panel Data Analysis

Though controversy remains among the defense economists about the nature of trade-off between military expenditure and other government expenditures, it is commonly believed, particularly in developing countries, that defense expenditures have an opportunity cost in terms of foregone other government expenditures. This paper examines empirically the existence of a budgetary trade-off among military, education and health expenditures in 14 developing countries for the time period 1999-2005 applying panel data analysis. The main findings of the article suggest that there is a positive association between military and education expenditure, and negative trade-off between military expenditure and health expenditure. Positive association between military and education expenditure indicates that government allocates the funds for defense and education sector independent of the government expenditures. Negative relationship between military expenditure and external debt growth indicates that defense sector's budget is fully funded by internal resources