Business Intelligence

Defense Expenditure And Economic Growth Under External Predation

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Executive Summary

This paper develops a growth model of a country under a Hobbesian environment with international conflicts where national defense is the only way to prevent external predation. The long run growth path is determined by the equilibrium of a dynamic game with three players, the external predator, the government and the family. The equilibrium growth path has three phases, submissive equilibrium, tolerant equilibrium and full-protected equilibrium. Different defense strategies result in different growth prospects and sustainable growth will endogenously induce adjustment of defense strategies.

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