Economic Impacts of Military Assistance

Statement to the Joint Economic Committee, Subcommittee on Economy in Government, Hearings on Economic Issues in Military Assistance. Two contrasting views of the effects of military assistance in recipient countries are discussed: (1) The resource diversion view, which suggests that military assistance retards development and distorts it by increasing the relative size of the military sector and reducing the margin available for civilian capital formation and skill formation (examples are India and Pakistan in the 1960s, as well as Castro's Cuba). (2) The resource addition view, which suggests that military assistance accelerates economic development and technological progress in recipient countries (examples are Korea, Taiwan, and Thailand). Critical questions are: (1) Would appropriations for foreign economic development aid be larger if military aid were reduced? (2) Would all, or part, of the country's own defense expenditures be discontinued if foreign military assistance was not forthcoming? Discussion emphasizes complementarities between military and development programs.