Demilitarization and Economic Growth : Empirical Evidence in Support of a Peace Dividend

This paper analyzes the implications of demilitarization on economic growth. I create a new dataset of military transitions since 1960 and measure the effect of demilitarization in countries that reduced their military capabilities and subsided aggressive or violent behavior. Semiparametric difference-in-difference and instrumental variable estimates predict that on average, demilitarization is associated with a 1% higher annual GDP per capita than if the country had remained militarized. Dynamic analysis shows that on average, GDP per capita is 15-20% higher 20 years after transition. Increases in foreign direct investment and international trade flows, as well as a reallocation of resources to more economically productive outlets, following demilitarization are found to contribute to growth. These findings provide empirical evidence in support of a Peace Dividend