Modernization and the Military in Latin America Author(s): Karl DeRouen Jr and Uk Heo Reviewed work(s): Source: British

Journal of Political Science, Vol. 31, No. 3 (Jul., 2001), pp. 475-496 Published by: Cambridge University Press Stable URL: http://www.jstor.org/stable/3593286 . Accessed: 09/09/2012 18:34
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B.J.Pol.S. 31, 475-496 Printed in the United Kingdom

Copyright@ 2001 Cambridge UniversityPress

Modernization and the Militaryin Latin America

KARL DEROUEN JR AND UK HEO*
Inthe 1950smodernization for beganto be animportant paradigm LatinAmerican development. Early modernization theory depicted the economies of Latin America as traditionaland The runsconsistently the underdeveloped. themeof technological progress through modernizationmodel.Thepurpose thisarticle to assessanimportant of is raisedby LatinAmerican question studies:thatlarge allocationsfor the militarysectorare conduciveto economic development literature somewhat is dated,manyrecent growthin LatinAmerica.Whilethis modernization studieshave also shownpositiveeconomicbenefitsfromdefencespendingin the quantitative hereis thatourmodelcaptures After ThirdWorld.The addedrelevance technological progress. our controllingfor technologicalprogressand externalities, analysis shows that the military We modernization. discuss these portionof budgetsin LatinAmericahave actuallyhindered findingsin termsof regimetype andlevels of US militaryaid to the region.

For much of the twentieth century, many Third World economies were dependent on a single export and were at the mercy of First World market demand. In Latin America, nations had for decades been tied to coffee, bananas, tin, copper, sugar and other primary product exports. The land in the region was concentrated in a few hands and there was scant industrialization. By the 1960s many Western scholars had turned their attention to the modernization model. Modernization theory depicted the economies of the region as traditional and underdeveloped. It suggested that progress from a traditional to a modernized economy would be linear and it tacitly stated that underdevelopment in the Third World was a result of internal factors. Since military rule was prevalent in much of the Third World, a substantial portion of the research focused on the role of the military in government and economic development.' Latin America often
* Department Political Science, SouthwestTexas State University;and Department of of PoliticalScience,University Wisconsin-Milwaukee, of We Howard respectively. wouldliketo thank Jim Handelman, Henson, Kiseok Nam, CurtisPeet and B. Dan Wood for their commentsand assistance.
1 For example, see Samuel Huntington, Political Order in Changing Societies (New Haven, Conn.: Yale University Press); John Johnson, ed., The Role of the Military in Underdeveloped

Countries NJ: The and Press,1962);JohnJohnson, Military Society (Princeton, Princeton University in LatinAmerica(Stanford, Calif.: Stanford UniversityPress, 1964);EdwinLieuwen,Armsand Politics in LatinAmerica(New York:Praeger,1960);EdwinLieuwen,'Militarism Politicsin and
Latin America', in Johnson, ed., The Role of the Military in Underdeveloped Countries, pp. 131-63;

MartinNeedler, 'PoliticalDevelopmentand MilitaryIntervention', AmericanPolitical Science

Review, 60 (1966), 616-26; Martin Needler, Political Development in Latin America (New York:

Random in House, 1968);LucianPye, 'Armiesin the Processof PoliticalModernization', Johnson,

ed., The Role of the Military in Underdeveloped Countries, pp. 69-89.

476

DEROUEN AND HEO

received special attention in these studies because of the exceptionally strong tendency of the military there to become involved in the affairs of state. Modernization consisted of several core concepts: rural land reform; industrialization and diversification in order to reduce dependence; regional economic integration; international commodity agreements; stimulation of investment to aid entrepreneurs;and strong central government.2 Modernization theory (also called the structural approach) was a leading paradigm for Latin American development from the 1950s to the late 1980s.3 Bienen noted that in the early 1960s the general consensus among scholars was that the military was a modernizing force in developing countries.4 The theme of technological progress runs consistently through the modernization model. The modernization model recognized that technology had to be increased in the agricultural and manufacturing sectors to stimulate production and move the economies away from mono-culture crops and primary-product exports. Leading economic theorists working on economic growth agreed that technological progress was critical for development." Governments had to take decisive budget and policy actions for such modernization to occur. Wynia added that 'technological innovation requires firm leadership, and the state is the only institution powerful enough to assume that role'.6 After the Second World War, Latin America slowly began to modernize, and a young technocrat class was formed. These technocrats began to apply technological solutions to economic problems, strove for efficiency and built up state regulatory agencies to administer their reforms. Another important feature of the modernization drive during the 1960s was the Alliance for Progress. This programme, substantially funded by the United States in the wake of the Cuban Revolution, sanctioned the role of the Latin American armed forces in nationbuilding. The Alliance injected US military aid into the modernization effort. The United States strove to maintain military forces in the region that could guard against Cuban-inspired insurgency. The Alliance linked this stability to economic growth.7 In this latter regard the military began to explore frontiers, winning over the rural masses and developing public works projects such as highways and bridges.8 We address this military aid in later sections. This article assesses a central issue derived from previous studies on Latin American development: that large allocations for the military sector are
2

Gary Wynia, The Politics ofLatin American Development (New York: Cambridge University G. Pope Atkins, LatinAmerica in the International Political System (Boulder, Colo.: Westview

Press, 1990), pp. 113-24.

3

Press, 1989), p. 364. 4 HenryBienen,ed., TheMilitary and Modernization (Chicago:AldineAtherton,1971). M. Solow, 'A Contribution theTheoryof EconomicGrowth', to Journal Quarterly 5 See Robert
of Economics, 70 (1956), 65-94. 6 Wynia, The Politics of Latin American Development, p. 117. 7 US Senate, Committee on Foreign Relations, Hearings before the Subcommittee on Western

Hemisphere Affairs(91st Congress,1st session, 24 Juneand 8 July 1969), pp. 20-1 and58.
8

Tulio Halperin Donghi, The Contemporary History of Latin America, trans. John Charles

Chasteen(Durham, NC: Duke UniversityPress, 1993, p. 295.

Modernization and the Military in Latin America

477

conducive to economic growth. Several recent studies have argued that positive benefits accrue from defence spending in the Third World.9 Moreover, if the military is an engine for modernization and growth, then increases in the military share of the budget will be beneficial to the economy.1' In this article we offer a re-analysis of the more recent guns-growth literaturewith the added relevance that our model captures technological progress - an important feature of modernization and a critical variable omitted from recent quantitative studies. This corpus of research began with Benoit's simple mathematical models but has become much more complex over the last decade. The findings from existing quantitative studies can be clustered as follows:" (1) Positive: defence spending has a positive impact on economic growth through increased purchasing power, aggregate demand and positive externality effects, such as technological spillover.12 (2) Negative: defence spending has a dampening effect on economic growth, either because of the allocation effect (the 'guns vs. butter' tradeoff) or because of the growth effect (the 'guns vs. growth' tradeoff).13
9 PeterC. Frederiksen Robert Looney, 'DefenseExpenditures EconomicGrowth and E. in and ForcesandSociety,9 (1983),633-45; PeterC. Frederiksen Robert and Countries;Armed Developing E. Looney, 'Another Look at DefenseSpendingandDevelopment Hypothesis',DefenseAnalysis, 3 (1985), 205-10; RobertLooney,ThirdWorld and (New MilitaryExpenditures ArmsProduction York:St Martin's of and Press,1988);Robert Looney,'TheEconomic Impact Rent-Seeking Military A of and Journalof Expenditures: Comparison ThirdWorldMilitary CivilianRegimes',American Economics Sociology,48 (1989), 11-29; Robert and Looney,'Militarization, Military Regimes,and of theGeneral ForcesandSociety,17(1990), 127-39;James World', Quality Lifein theThird Armed Pi 'TheImpact DefenseandNon-Defense of PublicSpending Murdoch, Chungron andToddSandler, on Growthin Asia andLatinAmerica',Defenceand Peace Economics,8 (1997), 205-24. 10 See MorrisJanowitz,TheMilitaryin the Political Development New Nations (Chicago: of of The in Countries; University ChicagoPress,1964);Johnson, Roleof theMilitary Underdeveloped Guillermo O'DonnellandPhilippeSchmitter, 'Tentative DemocraConclusions AboutUncertain cies', in GuillermoO'Donnell, Philippe Schmitterand L. Whitehead,eds, Transitions from Authoritarian Rule (Baltimore.,Md: Johns HopkinsUniversityPress, 1986), pp. 3-78; James in Malloy, 'ThePoliticsof Transition LatinAmerica',in JamesMalloyandMitchellSeligson,eds, Authoritarians Democrats:RegimeTransitions LatinAmerica(Pittsburgh, Pittsburgh and in Pa: UniversityPress, 1987), pp. 235-58. 1 Emile Benoit, Defense and EconomicGrowthin DevelopingCountries(Lexington,Mass.: LexingtonBooks, 1973). 12 Benoit,DefenseandEconomicGrowth DevelopingCountries'; in EmileBenoit,'Growth and Defensein DevelopingCountries; Economic and 26 Development Cultural Change, (1978),271-87; D. Dabelko JamesMcCormick, and Costsof Defense:SomeCross-National Evidence', 'Opportunity Journalof Peace Research,14 (1977), 145-54; GavinKennedy, DefenseEconomics(New York: St Martin'sPress, 1983); Looney, Third WorldMilitaryExpenditures and Arms Production; Pi of in on Murdoch, andSandler,'TheImpact DefenseandNon-DefensePublicSpending Growth Asia andLatinAmerica'. 13 Nicole Ball, Securityand Economyin the ThirdWorld(Princeton, Princeton NJ: University in Press, 1988);SaadetDeger,MilitaryExpenditures ThirdWorldCountries (London: Routledge & Kegan Paul, 1986); Saadet Deger and SomnathSen, 'MilitaryExpenditure, Spin-off, and EconomicDevelopment',Journalof Development Economics,3 (1983), 67-83; RiccardoFaini, Patricia and Evidence Annez andLanceTaylor,'DefenseSpending,EconomicStructure Growth: and and 32 AmongCountries OverTime',Economic Development Cultural Change, (1980),487-98;

478

DEROUEN AND HEO

(3) Insignificant: defence spending has no significant impact on economic

growth. 14
THE ROLE OF THE MILITARY IN LATIN AMERICAN POLITICS

There are several comprehensive summaries of the role of the military in Latin American politics.15 Some studies have suggested that military spending/involvement encourages growth, while others have treated the relationship as an empirical question. Many early studies made the a priori suggestion that the military could modernize society, and that direct military intervention would decrease as the economy stabilized.16Lucian Pye argues that the military forced soldiers into industrialized society, provided technical skills, gave citizenship training and improved social mobility.17It also provided psychological security as family ties were broken.'8 In other words, the military's role in economic and social development through the modernization of infrastructureis an attempt to
(F'note continued)

Uk Heo, 'Modelingthe Defense-Growth Relationshiparoundthe Globe', Journal of Conflict

Resolution, 42 (1998), 637-57; Uk Heo, The Political Economy of Defense Spending around the

World NY: EdwinMellen,1999);Uk Heo andKarlDeRouenJr,'Military (Lewiston, Expenditures, in and Growth theEastAsianNICs',Journal ofPolitics,60 (1998), Technological Change, Economic Growth 830-46;JamesLebovicandAshafaq Burden, Needs,andEconomic Security Ishaq,'Military
in the Middle East', Journal of Conflict Resolution, 31 (1987), 106-38. 14 Basudeb Biswas and Rati Ram, 'MilitaryExpenditures and Economic Growth in Less

Model andFurther An and Evidence',EconomicDevelopment DevelopedCountries: Augmented Cultural Change,34 (1986), 361-72; KarlDeRouenJr, 'DefenseSpendingandEconomicGrowth in LatinAmerica: Externalities 19 The Effects',International Interactions, (1993), 193-212; David and in Kinsella,'DefenseSpending EconomicPerformance theUnitedStates',DefenceEconomics, 1 (1991),295-309; Alex MintzandRandolph EconomicGrowth Stevenson,'DefenseExpenditures, and the "Peace Dividend":A LongitudinalAnalysis of 103 Countries',Journal of Conflict Resolution,39 (1995), 283-305; JamesE. Payne and Anandi P. Sahu, Defense Spendingand EconomicGrowth(Boulder,Colo.:WestviewPress, 1993).
15 Barry Ames, 'Military and Society in Latin America', Latin America Research Review, 23

'Politicians Uniform: in and Governments SocialChange Jackman, (1988), 157-69; Robert Military in the ThirdWorld',AmericanPolitical Science Review,70 (1976), 1078-97; KarenRemmer, RuleinLatin America on (Boston,Mass.:UnwinHyman,1989).Research defencespending Military by Latin Americanmilitaryregimes has at times generatedcontradictory findings. Zuk and or revealseithera curvilinear negativerelationship betweenmilitary summary Thompson's regime and defencespending(see GaryZukandWilliamThompson,'The Post-CoupMilitarySpending TimeSeriesAnalysis',American A PoliticalScienceReview,76 Question: PooledCross-Sectional (1982), 60-74, p. 62). Zuk and Thompsondo find, however,that militaryregimes divertgreater of foundthat,in general, defencespending increases portions thebudgetto defence.Remmer during LatinAmerican Sincethelate 1960sthebureaucratic-authoritarian wasoften model military regimes. in used to explainthe military's role in governing LatinAmerica.The modelassumesthe military applies technical prowess and bureaucratic efficiency to problems of state (Donghi, The
ContemporaryHistory of Latin America', pp. 311-12; see also O'Donnell and Schmitter, 'Tentative

Conclusions AboutUncertain Democracies'; Remmer,MilitaryRule in LatinAmerica).

16 Marion Levy, Modernization and the Structure of Societies (Princeton, NJ: Princeton

UniversityPress, 1966);Pye, 'Armiesin the Processof PoliticalModernization'. 17 Pye, 'Armiesin the Processof PoliticalModernization'.
18 Janowitz, The Military in the Political Development of New Nations, pp. 80-3.

Modernization and the Military in Latin America

479

justify 'expensive public maintenance' of the armed forces.19 The 'old' professionalism literature assumed that the military was in constant preparation for external enemies.20The military may have had its most substantive economic development impact in the decades prior to the Cold War and the subsequent Cuban Revolution. In the decades leading up to the First World War, the Latin American militaries were effectively developing the countryside. The militaries provided the technological skill for such impressive public works projects as the rail systems in Uruguay and Argentina, and the communications systems in Chile, and offered educational opportunities to sectors of society that historically lacked such access.21 This school of thought has not been without its critics. Martin Needler gives four reasons why military-induced modernization rarely succeeds: (1) not all the officers who take part in coups are in favour of modernization; (2) actual legislative programmes are hampered by divisions in the military leadership; (3) the technicians relied upon by the military to bring about change are often conservatives left over from previous governments; and (4) the traditional oligarchy, which usually supports the intervention, often opposes structural reform. Needler asserts that intervention typically hinders the attainment of political maturity and real modernization can only come about with mass participation and curtailment of oligarchical power.22 Jos6 Nun articulates a similar argument against the modernization model, suggesting that the military cannot substitute for growth in the absence of an ensconced middle class.23 Samuel and Arturo Valenzuela also strongly oppose any notion that the Western notion of modernization should be applied to Latin America.24 The modernization approach, they argue, assumes both Western liberal values and the growth of a middle class. They argue that development in Latin America must be understood in terms of the region's position in the global economy throughout history. A second line of research that suggested defence would have positive impacts posited that the military would develop social programmes after the primary goal of facilitating growth was accomplished. The middle class coup/corporatist theorists argued that the military protected its corporate interests and those of the middle class by increasing its share of the resources largely at the expense
19
20

AlfredStepan,'TheNew Professionalism Internal of Warfare MilitaryRole Expansion', and in Abraham Lowenthal J. SamuelFitch,eds,ArmiesandPolitics in LatinAmerica(New York: and HolmesandMeier, 1986), pp. 134-50.
21 Johnson, The Military and Society in Latin America, p. 77; Donghi, The ContemporaryHistory of Latin America, p. 297. 22 23

Atkins, Latin America in the International Political System, p. 284.

MartinNeedler, 'The Latin AmericanMilitary:PredatoryReactionaries Modernizing or Lowenthal J. Samuel and CoupRevisited',in Abraham Jos6Nun, 'TheMiddleClassMilitary

Patriots?' Journal of Inter-American Studies, 11 (1969), 237-44. Fitch, eds, Armies and Politics in Latin America (New York: Holmes and Meier, 1986), pp. 59-95. Politics, 11 (1978), 535-57, p. 554.

24 J. SamuelValenzuela Arturo and 'Modernization Dependency', and Valenzuela, Comparative

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DEROUEN AND HEO

of the peasant and working classes.25 Such intervention entails increased allocations of resources, ostensibly from social programmes such as education and health. The military would resume spending in the social sector after it had stimulated growth. Huntington argued that there was no overarching pattern to military intervention in the Third World, but the level of intervention seemed to be inversely related to the amount of economic development in the country.26 There has also been research that treats the guns-growth relationship as an empirical question. In an analysis of Argentina, Looney and Frederiksen concluded that military regimes gave top priority to economic development, while civilian regimes tended to cut military spending so that social spending could be increased.27Murdoch et al. tested a production function model on Latin America using a sophisticated pooled time-series model on the region.28They directly addressed budgetary tradeoffs, the potential for a peace dividend and externalities. They showed that defence spending has a slightly positive impact on growth. However, they also found that shifting from defence to non-defence spending would increase output. Other empirical work reports a negative or insignificant impact from defence spending/military regimes. Looking at all of Latin America, Karen Remmer and later Yi Feng found that economic growth in Latin America is more likely under civilian than military regimes.29DeRouen posited that the resource-constrained and military dominated states of Bolivia, Guatemala, Honduras and Paraguay would fit the corporate interest model. The direct effect of military spending was negative.30 Defence spending generated positive externalities in the private sector in these countries (although only statistically significant in Guatemala and Paraguay).31
Lieuwen,Armsand Politics in LatinAmerica; Eric Needler, 'TheLatinAmerican Military'; SoldiersinPolitics(Englewood Cliffs,NJ:Prentice-Hall, 1977);Nun,'TheMiddleClass Nordlinger, MilitaryCoupRevisited'. 26 Samuel Huntington,Political Order in Changing Societies (New Haven, Conn.: Yale and Press, 1968). See also BarryAmes andEd Goff, 'Education DefenseExpenditures University in Latin America: 1948-1968', in Craig Liske, William Loehr and John McCamnat,eds, Public Policy (New York: Sage, 1975), pp. 175-97; MargaretHayes, 'Policy Comparative of in Consequences MilitaryParticipation Politics:An Analysisof Tradeoffsin BrazilianFederal in Public Policy (New York: Sage, 1975), Expenditures', CraigLiske et al., eds, Comparative TradeoffsbetweenEducationand Defense in LatinAmerica', pp. 21-52; J. Verner,'Budgetary Journalof DevelopingAreas, 18 (1983), 77-91. 27 Robert Looney and Peter Frederiksen, 'Consequencesof Military and Civilian Rule in Political Studies,20 (1987), 34-46, p. 44. Comparative Argentina', 28 Murdoch al., 'TheImpact DefenseandNon-Defense et of in PublicSpending Growth Asia on andLatinAmerica'. 29 Remmer, MilitaryRule in LatinAmerica;Yi Feng, 'Regime,Polity, andEconomicGrowth: The LatinAmerican Growthand Change,26 (1995), 77-105. Experience', 30 DeRouen,'DefenseSpending andEconomicGrowthin LatinAmerica'. 31 See Richard Public Goods,and Club Comes andToddSandler,TheTheoryof Externalities, Goods(Cambridge: are effectsassociated Press,1986).Externalities spillover Cambridge University with goods, services or economic transactions such as spendingon governmentprogrammes.
25

Modernization and the Military in Latin America

481

It becomes evident that, perhaps as a result of the variations in modelling, empirical findings from these previous studies lack consistency. To this end we propose and test a model capable of assessing the military's role as modernizer in eighteen Latin American cases over time and cross-nationally. As we describe below, this new model is a refinement of previous work that did not address the specific impact of technological progress on the guns-growth relationship.32 According to Solow, however, technology tells us how much economic output can be produced from the amount of labour and capital used in production.33 Solow writes that 'the labour augmenting form of technological progress is necessary for steady-state growth to be possible.'34 A number of scholars have also noted the need for a non-linear component in guns-growth modelling.35 Mintz and Stevenson wrote that defence spending decreases after initial investments in the military-industrial complex. In other words, as technology is enhanced, economies of scale allow for a reduction in the cost of defence. In the Latin American context, Schmitter reported a curvilinear trend for defence spending by military regimes.36These findings point to the need for a non-linear model that can tap increases in technological sophistication and thus control for start-up costs. Our model captures the non-linear component of technological progress in the production function model context, which explains economic growth as a function of labour and capital.

(F'note continued)

attached transactions have positivesocialbenefitsor negativesocialcosts. The to can Externalities with coal revolution thenegativeexternality but associated use of abundant helpedfueltheindustrial the WhentheBritish its use hasbeenpollution. century patrolled Atlanticsea lanesin thenineteenth interest the was to protectits own shippinginterests, unintended consequence thatthe US shipping benefitedfrom heightenedsecurity.See CharlesKegley and Eugene Wittkopf,WorldPolitics: Trends and Transformations, edn (New York:St Martin'sPress, 1997), p. 325; BruceRussett 6th
and Harvey Starr,WorldPolitics: TheMenufor Choice, 5th edn (New York: W. H. Freeman), p. 396.

effects on a nation'seconomy. Defence spendingcan have positiveor negativeexternality 32 See DeRouen,'DefenseSpending in andEconomicGrowth LatinAmerica: Externalities The Effects';MichaelJ. MuellerandH. SonmezAtesoglu,'DefenseSpending, Change, Technological 4 in andEconomicGrowth theUnitedStates',DefenceEconomics, (1993), 259-69; Alex Mintzand Economic Growthand the "Peace Dividend"',American Chi Huang, 'Defense Expenditures, The PoliticalScienceReview,84 (1990), 1283-93;Alex MintzandChiHuang,'GunsversusButter:
Indirect Link', American Journal of Political Science, 35 (1991), 738-57.
33

RobertM. Solow, 'TechnicalChangeand the AggregateProduction Function',Review of

Economics and Statistics, 39 (1957), 312-20. 34 Robert Solow, Growth An M. Press,1970), (New York:Oxford Theory: Exposition University

p. 35. 35 Steve Chan, 'The Impactof Defense Spendingon Economic Performance: Survey of A
Evidence and Problems', Orbis, 29 (1985), 403-34; Heo, ThePolitical Economy ofDefense Spending

and around World; andDeRouen,'Military the Heo Expenditures, Technological Change, Economic in and Growth the EastAsianNICs';Mueller Atesoglu,'DefenseSpending, Change, Technological andEconomicGrowthin the UnitedStates'. 36 PhilippeSchmitter, 'ForeignMilitaryAssistance,NationalMilitarySpending,and Military
Rule in Latin America', in Phillippe Schmitter, ed., Military Rule in Latin America: Function,

and Consequences, Perspectives(BeverlyHills, Calif.:Sage, 1973), pp. 117-87.

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DEROUEN AND HEO

A NON-LINEAR DEFENCE-GROWTH MODEL

Studies of the defence-growth nexus often proceed from a neoclassical production model approach. The approach employs a supply-side description of changes in aggregate output. Production function models assume that real output per capita and capital stock grow at generally constant rates. They also assume that a steady increase of labour and capital input will increase aggregate output at a similar rate.37Thus, the production function explains the growth of aggregate output by changes in capital and labour. We argue that most of the earlier versions of the production function model have not included variations in technological progress and are potentially underspecified. According to Solow, the level of technology is an indication of the economic output which can be generated from given inputs in labour and capital.38 He concludes that 'the labour augmenting form of technological progress is necessary for steady-state growth to be possible'.39 Including technological progress with an assumed rate of increase puts the investigation of the relationship between defence spending and economic growth in its proper non-linear context.40 Technology provides important benefits for growth such as decreases in production costs.41 Mueller and Atesoglu's two-sector (military and non-military) model captures technological progress.42However, with only two sectors modelled it is impossible to distinguish potentially varying rates of productivity and technological progress in the non-military government sector and the private sector. This is important because it is generally believed that productivity and technological progress rates in the government sector are different from those in the private sector. For example, Michael Ward and David Davis showed that the government sector has lower productivity than the civilian sector in the case of the United States.43 It makes more sense theoretically to divide the non-military sector into the government and private sectors. The addition of the control for technological progress in the resulting three-sector model makes for an even more compelling guns-growth production function model. Based on the above theoretical discussion, we assume that there are three sectors in the economy, M, N and P representing the military, a non-military government, and private sectors. Each of these sectors contributes to the national economic output. Following Gershon Feder, Labour (L) and Capital (K) are the
37 Solow, GrowthTheory. 38 Solow, 'Technical Function'. Changeandthe AggregateProduction 39 Solow, GrowthTheory, 35. p. 40 See Chan,'The Impactof Defense Spendingon EconomicPerformance'. 41 Edward EconomicGrowth,1929-1982 (Washington, The DC: Denison,Trendsin American 1985). BrookingsInstitution, 42 MuellerandAtesoglu, 'DefenseSpending, Technological Change,andEconomicGrowthin the UnitedStates'. 43 Michael and and Ward DavidDavis, 'SizingupthePeaceDividend: Economic Growth Military in PoliticalScienceReview,86 (1992), 748-55. Spending the UnitedStates,1948-1996',American

Modernization and the Military in Latin America

483

standard inputs to each sector.44Following Solow and Mueller and Atesoglu, technology is also an input in each sector.45 At, Bt, and Ct represent neutral technological change in the respective sectors. Neutral technical change means that changes in technology do not change the shares of income going to the factors of production and the factor ratios.46Since the military and non-military government sectors are likely to have externality effects, they are also inputs to the private sector.47Therefore,
M = A,F(Lm, Kin)

N = BtG(Ln,Kn)
P = CtH(L,, K,, M, N),

where subscripts denote sectoral inputs, M is military sector output, N is non-military government output, and P is private sector output. By utilizing the total inputs of labour and capital as well as the technological change ratio and the marginal productivity ratio against other sectors, we derive the following equation.48 dY/Y = A+ e2'1j(dL/L) +
eAtIk(I/Y) + [7rm(M/Y)+ e2'lt1m](dM/M) + + [7rn(N/Y) + In](dN/N) + )-nn(N/Y). e2t AIm(M/Y)

The variable dL/L represents the growth rate of labour; I/Y is the investment share of gross domestic product (GDP); dM/M is the growth rate of defence spending; M/Y indicates defence share of GDP; dN/N is the growth rate of non-defence government spending; and N/Y is non-defence government spending share of GDP.7i (where i = m, n) tells us the combined effects of technological progress and productivity changes on economic growth and /i reveals externality effects; eAt is the technological change factor which is positive even in cases where A is negative because of the exponential term. It is reasonable to assume that countries will not experience a negative change in technology.49
Economics,12 Journalof Development Feder,'OnExportsandEconomicGrowth,' 44 Gershon (1983), 59-73. 45 Solow, 'Technical Function';Muellerand Atesoglu, Changeand the AggregateProduction 'DefenseSpending,Technological Change,andEconomicGrowthin the UnitedStates'. 46 Muellerand Atesoglu, 'DefenseSpending, Technological Change,andEconomicGrowthin the UnitedStates'. 47 See Comes andSandler, Public Goods,and ClubGoods;Mintz TheTheory Externalities, of EconomicGrowthandthe "PeaceDividend"'. andHuang,'DefenseExpenditures, 48 Although cannot rate as we getattheexactannual of technological progress well asproductivity the materialize conceptby using the ratiobetweenvarious of each sector,we can mathematically sectors.For example,the technological progressrateof the militarysectorcan be describedwith respectto that of the privatesector as 1 + ,m;see Heo and DeRouen, 'MilitaryExpenditures, of Change,andEconomicGrowthin the EastAsian NICs' for a full derivation the Technological model. 49 Muellerand Atesoglu, 'DefenseSpending, Technological Change,andEconomicGrowthin the UnitedStates'.

484
DATA

DEROUEN AND HEO

Since the fluctuation of exchange rates may change the value of military expenditure even when the actual military expenditure is the same, we use the constant value of local currency instead of constant dollar values.50Non-military government expenditure is obtained by subtracting defence spending from the total government expenditure of each year. According to Alexander, government consumption reflects not only the activities (programmes) of the government, but also captures discretionary changes in government expenditure.51Thus, government consumption is used to measure the output of the government sector. Like DeRouen, we obtained data for military expenditure from the Stockholm International Peace Research Institute.52 Economic data (investment, government consumption) are obtained from the International Monetary Fund (IMF).53These are annual data and are converted to 1985 constant values using the GDP deflator provided in the same source. Due to the lack of data, the consumer price index (CPI) was used for Brazil and Colombia. Labour-force data are available for only a few countries and the quality of the data is questionable. Following several others who assert it is reliable, we use population growth data from the IMF as a proxy.54 The years of coverage are: Argentina (1961-89), Bolivia (1961-89), Brazil (1965-87), Chile (1962-89), Ecuador (1961-89), Mexico (1961-88), Nicaragua (1961-87), Panama (1961-89), Uruguay (1961-89). All other cases covered the years 1961-90. We did not include Cuba because of data availability and comparability problems. The empirical measures employed in the analysis are: growth in labour population - the log of working-age population less the log of working-age population in the previous year; investment ratio - the proportion of gross fixed investment to GDP; IIY: dM/M: growth in military spending - the log of defence spending less the log of defence spending in the previous year, dNIN: growth in non-military government spending - the log of non-military dL/L:

50

See SomnathSen, 'MilitaryExpenditure Data for Developing Countries:Methods and

Measurement', in Geoffrey Lamb, ed., Military Expenditure and Economic Development

DC: (Washington, WorldBank, 1995), pp. 1-18. 51 W. Robert Alexander, 'The Impact of Defence Spending on Economic Growth: A Multi-SectoralApproachto Defence Spending and Economic Growth with Evidence from
Developed Economies', Defence Economics, 2 (1990), 39-55.
52

DeRouen, 'Defense Spending and Economic Growth in Latin America'; Stockholm

International Peace Research Institute, SIPRI Yearbook: World Armaments and Disarmament

(London: TaylorandFrancis,variousyears).
53 International Monetary Fund, International Financial Statistics Yearbook (New York:

International Fund,variousyears). Monetary 54 See Alexander, 'The Impact of Defence Spending on Economic Growth'; Rati Ram, 'GovernmentSize and Economic Growth: A New Frameworkand Some Evidence from EconomicReview,76 (1986), 191-203. and Cross-section Time-seriesData',American

Modernization and the Military in Latin America

485

M/Y: N/Y:

government spending less the log of non-military government spending in the previous year; military spending ratio - the proportion of military spending to GDP; non-military government spending ratio - the proportion of nonmilitary government spending to GDP.

METHODS

We employed a two-tiered research design: (1) panel estimates and (2) individual longitudinal analysis. The rationale for panel estimates is that it increases the variability of the independent variables by pooling the data.55 Moreover, this provides a better picture of the defence-growth nexus in Latin America. The reason for the individual country longitudinal design is that statistical analysis of a cross-sectional sample is not equipped to deal with the diversity existing across countries in terms of the structuralvariation of political and economic systems. Thus, testing the defence-growth relationship in each country will allow us to find out the economic effects of defence spending, non-defence government spending, technology, employment and investment on individual countries.56 Panel Estimation Since the equation we test includes exponents, non-linear estimation is required. For non-linearpanel estimation, there aretwo approaches:(1) Zellner' s seemingly unrelated regression (SUR), and (2) non-linear least squares with dummy variables (NLSDV). We employed NLSDV for two reasons. First, the SUR modelling technique is asymptotically efficient only if the error terms of the eighteen equations are contemporaneously correlated." Otherwise, estimating individual equations separately may be more efficient than joint estimation.58 Since the eighteen countries do not have the same number of observations, the errors cannot be correlated. For this same reason, the time effects of pooling the data cannot be incorporated into the analysis. Thus we assume fixed effects in each country and employ NLSDV. It allows us, first, to estimate the overall effects of each independent variable while correcting for country-specific effects in time via dummies representing each country.59 Secondly, NLSDV
Pi 'Growth Defense: and JamesC. Murdoch, Macnair, Chung-Ron andToddSandler, 55 Elizabeth Pooled Estimatesfor the NATO Alliance, 1951-1988', SouthernEconomicJournal,61 (1995), 846-60. 56 See Chan,'The Impactof Defense Spendingon EconomicPerformance'. 57 See Arnold Zellner,'An EfficientMethodof Estimating Regressionand SeeminglyUnrelated
Tests of Aggregation Bias', Journal of the American Statistical Association, 57 (1962), 358-68;

George G. Judge, W. E. Griffiths,R. CarterHill, Helmut Lutkepohland Tsoung-ChouLee,

Introduction to the Theory and Practice ofEconometrics, 2nd edn (New York: Wiley, 1988), p. 452.
58

betweenTwo SeeminglyUnrelated TakeakiKariya,'Testsfor the Independence Regression

Equations', Annals of Statistics, 9 (1981), 381-90.

59 Lois W. Sayrs,Pooled TimeSeriesAnalysis(London: 1989). Sage Publication,

486

DEROUEN AND HEO

estimation also allows us to obtain the values of A, and qri(where i = 1,k, m, 7ti, n) separately. Separate estimation allows us to ascertain the externality effects of both military and non-military government spending as well as the combined effects of technological progress and productivity changes on economic growth. Regression results may be spurious if any variable in the equation is integrated.60To this end, each variable is tested for the presence of a unit root based on the augmented Dickey-Fuller test. No independent variables were integrated. Individual Longitudinal Analysis For individual longitudinal analysis, a non-linear least squares (NLS) regression method is employed because of the exponential term in the equation.61 Like NLSDV, NLS estimation also allows us to obtain the values of A, Ci,and /ij (where i = 1, k, m, n) separately. In the individual estimations, we tested for the presence of a unit root based on the augmented Dickey-Fuller test. When the presence of a unit root is detected, this problem has been recognized by differencing the variable. Autocorrelation could also be a problem in the separate time-series estimations. However, since the Durbin-Watson test assumes a linear model, White suggests a method for estimating the exact distribution of the Durbin-Watson test statistic in a non-linear model which he calls the Approximate Non-linear Durbin-Watson (AND) test.62 Utilizing the AND test, we detected autocorrelation in Colombia (AND = 2.98), Costa Rica (AND = 1.48), El Salvador (AND = 1.06), Guatemala (AND = 1.51), Honduras (AND = 1.40) and Paraguay (AND = 1.38). For these countries, Generalized Non-linear Least Squares (GNLS), suggested by Adrian Pagan, is utilized to correct the problem.63

60

C. W. J. Grangerand Paul Newbold, 'SpuriousRegressionsin Econometrics', Journalof

Econometrics, 2 (1974), 111-20.

61 See Peter Kennedy, Guide to Econometrics A Mass.: MIT Press, 1989). The (Cambridge, non-linear squares least whichgenerates sumof squared the regression employsaniterative technique to residuals be minimized. Thiscomputation in processcanbe summarized the followingfoursteps. of valuesprovided the researcher First,it startswith an approximation the parameter (available by fromtheauthors). the and residuals. Secondly,it computes residuals thenthesumof squared Thirdly, it changesone of theparameter valuesslightly,re-computes residuals analyseshow thesum the and of squared residuals values change(becomelargeror smaller). Finally,it keepschanging parameter in directions lead to smallersumsof squared that residuals untilit findsthe set of parameter values causes the sum of squared residualsto rise. that,when changedslightlyin any direction, 62 KennethJ. White, 'The Durbin-Watson Test for Autocorrelation Non-linearModels', in

Review of Economics and Statistics, 74 (1992), 370-3.

63

AdrianPagan, 'A Generalized of Australian Approachto the Treatment Autocorrelation',

Economic Papers, 13 (1974), 267-80.

Modernization and the Military in Latin America

FINDINGS

487

The panel estimates are reported in Table 1. Technological progress has a significant impact on economic growth. Labour is positive and significant. Investment is positive and very close to being significant. Both externality

TABLE 1

The NLSDV Results

Variables
Technology (A) Investment (/k) Labour (i i) Military Sector (n,,) Military Externality (7r,) Non-Military Sector (rm)

Coefficient
- 0.330 0.145 0.264 0.718 0.614 - 0.601

T-ratio
- 22.510*** 1.256 7.757*** 1.599* 17.015*** - 3.674***

0.839 Non-Military Externality (q/,) Elasticity of Economic Growh with respect to Elasticity of Economic Growth with respect to Non-Defence Share of GDP (A7in) Country effects Argentina Bolivia Brazil Chile Colombia Costa Rica Dominican Republic Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama Paraguay Peru Uruguay Venezuela 0.353 0.355 0.360 0.339 0.350 0.381 0.347 0.336 0.346 0.376 0.342 0.381 0.341 0.313 0.398 0.327 0.315 0.010
Defence Share of GDP (2inm)

27.595***
- 0.237

0.198 10.384*** 9.672*** 9.892*** 9.275*** 8.655*** 11.141*** 8.394*** 10.395*** 10.718*** 11.357*** 10.206*** 9.270*** 9.251*** 7.343*** 10.905*** 9.501*** 7.181*** 1.675**

Notes: The dependent variable is Economic Growth. N= 520. Countryeffects are interceptsthat are, according to Sayrs, 'simply a characterization the variancethatattemptsto minimize the bias of in the "true"explanation'. Thus, they are not explanations for the between-unit variance or variance over time. See Lois W. Sayrs, Pooled Time Series Analysis (London: Sage Publications, 1989), p. 28. *Significantat 0.1 level, one-tail. **Significant at 0.05 level, one-tail. ***Significant at 0.01 level, one-tail.

488

DEROUEN AND HEO

effects of defence spending and non-defence government spending are positive and significant. Arriving at the real effects of defence and non-military government spending on economic growth requires further calculation. Since the final equation for estimation describes the guns-growth relationship in terms of the elasticity of total economic output with respect to military and non-military government spending, another calculation using the estimates of A, 7rmand rn, is necessary. The elasticity of economic growth with respect to the defence burden shows how an increase in the military or non-military government spending shares of the GDP will affect economic growth. The elasticity of GDP with respect to military spending is - 0.237. This means that a 1 per cent increase in the military spending share of GDP will result in a 0.237 per cent economic decline.64 The elasticity of GDP with respect to non-military government spending is 0.198, which means that a 1 per cent increase in the non-military government spending share of GDP will increase economic growth by 0.198 per cent. Summaries of the results of the individual longitudinal analysis and the individual country studies are reported in Tables 2 and 3 respectively. One of the most visible trends from these tables is that technological progress in the private sector has contributed to economic growth in most of Latin America. Technological progress has a positive and significant impact on economic growth in fourteen out of eighteen of the Latin American states. Investment is positive and significant in eleven countries while negative and significant in two countries. Labour is positive and significant in five countries while negative and significant in seven countries. This might be because we employed population growth as a proxy for labour. It is reasonable to assume that population growth in some countries was a hindrance rather than a positive economic input.
TABLE 2

Effects of Military and Non-Military Public Sectors on Economic Growth Positive* Negative* 1 1
4 7

Total 18 6
12 5 7

Technology (1) Military Externality (fm)

Non-military Externality (in)

14 5
11 1 0

Combined Effects
(Military) (7,m)

Combined Effects
(Non-military) (rn,,)

*Results reported in this table are significant at the 0.1 level.

of time-series models,the elasticityof GDPwithrespect 64 Likethirteen the eighteenindividual to the militaryshareof GDPis negativein the pooledanalysis.However,whereasthe elasticityof GDP with respectto the non-military government spendingwas negativefor ten of the eighteen countries,in the pooled model it was positive. See Murdochet al., 'The Impactof Defense and Non-DefensePublicSpendingon Growthin Asia andLatinAmerica'.

TABLE 3

The NLS Results for Individual Time Series Argentina Bolivia

0.062

Brazil
- 0.059

Chile
0.015

Technology (2)

- 0.011

t-statistic t-statistic t-statistic

- 0.958
1.296

10.144***
0.298

- 3.946***
- 9.111

0.519
- 0.078

Investment (qk) Labour (q//)

2.705**
2.077

3.344***
- 0.361

- 3.237***
8.123

- 0.572
1.032

2.051**
- 0.833 - 1.330*

- 5.078***
- 2.066 - 1.273

2.097**
2.499 0.180

0.594
- 5.678 - 1.134

Military Sector (7cm) t-statistic

R2

Military Externality (qim) t-statistic Non-Military Sector (7rn) t-statistic Non-Military Externality (/i,) t-statistic Sample size AND

- 0.000 - 0.026 0.047 1.187 - 0.006 - 1.802** 29 0.47 2.01

0.003 1.099 0.200 0.653 0.004 1.036 29 0.65 1.80

- 0.023 - 0.116 2.416 0.564 0.792 1.271 23 0.73 2.19

0.164 2.191** 1.635 0.617 0.135 1.686* 28 0.30 1.95

TABLE

3---continued Dominican Rep. Ecuador 0.012 0.886

0.925 2.001**

El Salvador - 0.026 - 0.828

0.353 0.059

Guatemal

Technology (A) t-statistic

Investment t-statistic
(Vk)

- 0.050 - 4.850***
1.486 2.642**

0.061 3.801***
0.075 0.994

Labour (iti) t-statistic

Military Sector (nm) t-statistic Military Externality (Im)

- 2.219 - 1.003
- 2.290 - 0.645 0.111

2.534 2.630**
3.466 0.431 0.020

1.862 1.109
- 1.199 - 0.963 0.041

- 0.180 - 1.651*
- 4.253 - 0.697 0.004

t-statistic

0.815
- 0.404

0.292
- 6.597

1.212
3.944

0.423
- 4.244

Non-Military Sector (7r,)

t-statistic Non-Military Externality (rn,) t-statistic Sample size

R2

AND

- 0.263 0.096 0.563 30 0.36 1.97

- 2.699** 0.252 3.978*** 29 0.60 1.91

0.962 0.187 1.328* 30 0.64 1.98

- 0.896 0.007 0.673 30 0.74 1.86

TABLE

3-continued Nicaragua Panama 0.075 5.556*** 0.138 2.369** 0.152 2.185** 10.139 1.220
- 0.229

Paraguay 0.080 4.439*** 0.059 1.039 0.129 1.547** 3.311 0.647

0.012

Peru

Technology (2) t-statistic Investment (V/k) t-statistic Labour (//1) t-statistic Military Sector (cm) t-statistic
Military Externality (i/n)

0.076 6.463*** 0.146 1.722** 0.490 4.342*** 1.033 1.528*

0.031 0.338

0.075 9.883*** 0.193 3.435*** 0.255 3.824*** 1.334 2.870***

0.012

t-statistic t-statistic

Non-Military Sector (n,,) Non-Military Externality (i,,) R2

1.371"

- 2.376**
- 10.534 0.049

1.202
- 17.488 0.026

3.660***
- 1.480

0.373
- 0.001

- 4.157*** 1.950** 29 0.78 1.64

- 2.436** 1.500* 29 0.54 1.73

- 0.969
0.019

t-statistic Sample size

AND

- 0.072 27 0.70 1.63

3.545*** 30 0.78 1.99

*Significantat 0.1 level, one-tail. **Significantat 0.05 level, one-tail. ***Significantat 0.01 lev beneath each value.

492

DEROUEN AND HEO

We now focus our attention on the effect of defence spending on macroeconomic performance. The externality effect of defence spending (ifm) is significant and positive in only five countries (Chile, Costa Rica, Mexico, Nicaragua and Peru).65This externality effect is negative and significant in the case of Panama. The externality effect of non-military government spending (/fn) is significant and positive in eleven countries (Chile, Colombia, Costa Rica, Ecuador, El Salvador, Mexico, Panama, Paraguay, Peru, Uruguay and Venezuela). This externality is negative and significant in the case of Argentina. In the cases of positive externalities, government defence and non-defence spending generate positive externalities in the private sector. The combined effects of technological progress and productivity of the military sector (n,m)is positive and significant for Costa Rica, while negative and significant for Argentina, Colombia, Nicaragua and Peru. The combined effects for the non-military government sector (Itn) is negative and significant for Colombia, Costa Rica, Ecuador, Mexico, Panama, Paraguay and Uruguay. These results reveal that military spending is not an efficient use of resources in most of Latin America. In order to assess the defence-growth relationship, we also calculated

TABLE 4

The Elasticity of GDP with Respect to Military and Non-military Government Expenditures Defence share of GDP 0.009 0.127 0.147 0.083 0.086
0.416

Country Argentina Bolivia Brazil Chile Colombia

Costa Rica

Non-defence share of GDP - 0.001 0.012 - 0.143 0.024 - 0.371

- 0.276

Dominican Rep. Ecuador El Salvador Guatemala Honduras Mexico Nicaragua Panama

Paraguay

0.114 0.040 0.031 0.259 0.213 0.277 0.079 0.760

0.020 0.076 - 0.101 - 0.259 0.011 -0.417 0.026 - 0.790

- 1.399

- 0.265

Peru Uruguay Venezuela

- 0.100 - 0.030 - 0.110

- 0.111 - 0.063 0.171

65 The case of CostaRica is unusual becauseits armedservicesaresmall(about8,000 strongin as and 1994),it has a low defenceburden has a stronghistoryof democracy. Perhaps a combination the of these phenomena, countrybenefitseconomicallyfromdefencespending.

Modernization and the Military in Latin America

493

the elasticity of economic growth with respect to the defence burden. The elasticities of GDP with respect to defence and non-defence spending in individual countries are reported in Table 4. If the elasticity is smaller than 0.01, we consider the relationship inelastic. In thirteen countries, an increase in defence share of GDP (defence burden) is expected to reduce growth while the opposite is the case in four countries. In Argentina, economic growth is inelastic with respect to the defence share of GDP. The elasticity of economic growth with respect to non-military government spending is negative in ten countries. It is positive in seven countries.
DISCUSSION

The findings of our analysis indicate that the effects of military spending on economic growth are not the same across countries in Latin America. Thirteen exhibited a negative relationship, whereas four indicated positive ones. Why does military spending have different effects on economic growth over countries? What attributes separate them? According to extant literature, there could be two important contextual factors that make a difference in terms of economic effects of military spending on growth: regime type and level of US military aid. Regime Type There have been many studies on the economic performance of various regime types. The main question in these studies was whether the military plays a role of modernizing agent. The theoretical reason that regime types can make a difference in economic growth is that the level of market control or the openness of the market may vary between different types of government.66For example, less democratic regimes may have tighter controls over markets and be less open to trade compared to more democratic governments. In terms of the positive role of the military in economic development, the military-as-modernizer model posited that military regimes could oversee basic structuralreforms by enacting austerity policies, luring foreign investment and imposing internal stability.67 Accordingly, we would expect more authoritarianregimes to fare better.68 Table 5 gives levels of democracy and US military aid to the region. The most democratic states over time are Costa Rica, Venezuela, Colombia, Ecuador, Uruguay, Dominican Republic, Peru and Honduras. Among them, only Costa Rica and the Dominican Republic exhibit positive elasticities of GDP with
See David A. Leblang, 'PropertyRights, Democracy and Economic Growth', Political ResearchQuarterly, (1996), 5-26; see also Feng, 'Regime,Polity, andEconomicGrowth: 49 The LatinAmerican in 'Politicians Uniform:MilitaryGovernments Social and Jackman, Experience'; Soldiersin Politics. Changein the ThirdWorld';Nordlinger,
67 68 66

Remmer, Military Rule in Latin America.

Looney, 'TheEconomicImpactof Rent-Seeking MilitaryExpenditures'. and

494

DEROUEN AND HEO TABLE

Democracy Scores and Levels of US Military Aid in Latin America Democracy scoret 9.10 9.24 6.87 9.68 18.57 21.00 11.67 12.86 9.93 9.20 11.43 6.18 4.15 7.07 3.67 11.67 12.14 19.13 10.75 US military aidt 9.02 2.76 14.27 5.03 11.04 1.10 3.47 4.23 34.83 1.39 16.84 0.00 1.06 1.66 1.03 7.10 1.99 4.19 6.72

Country Argentina Bolivia Brazil Chile Colombia Costa Rica* Dominican Rep.* Ecuador El Salvador* Guatemala Honduras Mexico Nicaragua Panama* Paraguay Peru Uruguay Venezuela Regional average

*Positive elasticity of economic growth with respect to military spending. tAverage score based on range of 1 (most autocratic) to 21 (most democratic) for years in study period. Calculatedfrom Keith Jaggers and Ted Gurr, Polity III: Regime Change and Political Authority, 1800-1994 (computer file) (Boulder, Col.: Keith Jaggers/College Park, Md: Ted Gurr (producers), 1995; Ann Arbor, Mich.: Interuniversity Consortiumfor Political and Social Research (distributor), 1996). tAnnual averagein millions of currentdollarsfor the period 1962-90. Data are from Statistical Abstract of the US (Washington, DC: US Departmentof Commerce, various years). respect to defence spending. The rest of the sample countries with lower democratic levels also show a similar pattern (only two of the ten show positive elasticity of GDP with respect to defence spending). Therefore, no clear pattern is revealed. US Military Aid Another factor that may contribute to the difference in the defence-growth relationship in Latin America is US military aid (see Table 5). According to the modernization model, increasing levels of US military aid also facilitated growth. As mentioned, the military was considered a means of preventing insurgency while helping Latin American countries move along the linear path

Modernization and the Military in Latin America

495

to development.69 US military aid was, at least in some cases, specifically designed to reduce defence burdens and relieve the pressure on Latin American governments that might have difficulty justifying 'guns' over 'butter'.70 Average military aid from the United States was not substantial in most cases. Two notable exceptions are Honduras and, especially, El Salvador. This aid is important given its magnitude in comparison to the relatively small economies of those countries. The high amounts of aid given to El Salvador may have been important given that the elasticity of economic growth with respect to defence spending is positive. However, no overarching pattern is found. Perhaps this is because the overall low amounts of US military aid to the region from 1962 to 1990 did not decrease defence burdens enough to be relevant.71
CONCLUSION

Our purpose here has been to assess a widely debated issue in Latin American studies: the relationship between defence spending and economic growth. This debate has been reflected in the modernization literatureof the 1960s and in later quantitative analyses. Our contribution to this debate is a sophisticated defence-growth model which controls for technological progress. Modernization has been a dominant theme of post-war Latin American economic policy.72 With the exception of Cuba, and several years of socialist rule in Chile, Guatemala and Nicaragua, policy makers in the region have urged modernization via technological advances, import-substitution and investment. The central assumption was that the economies of the region needed to evolve from traditional to modern. The modernization paradigm also influenced thinking on the impact of the military on Latin American economies. A key element of the military-as-modernizer model is that military spending in developing countries could stimulate growth via education, socialization and other intervening factors.73The military was perceived as an institutional engine for economic growth in the early Latin American modernization studies, in later research on the region and finally in more recent quantitative studies on Latin
America.74
69

on in Hayes, 'PolicyConsequences Military of Participation Politics';US Senate,Committee

Foreign Relations, Hearings before the Subcommittee on Western Hemisphere Affairs. 70 US Senate, Committee on Foreign Relations, Hearings before the Subcommittee on Western Hemisphere Affairs, pp. 23-9 and 44.
71 The role of the UnitedStatesin the regionmay begin to changeas the UnitedStateslifts its 'All armsembargo.See PhilipButterworth-Hayes, Eyes Turnto LatinAmerican high-technology

Latin America', Aerospace America (July 1998), 48-52. 72 Atkins, Latin America in the International Political System, p. 324. and Society, 15 (1990), 249-62.
74

73 NehamaBabin, 'Military EconomicGrowth,andthe Time Factor',ArmedForces Spending, in as See Johnson,'TheLatinAmerican ed., Group', Johnson, Military a Politically Competing

in RobertLooneyandPeter in LatinAmerica'; Malloy,'ThePoliticsof Transition LatinAmerica'; et Murdoch al., 'TheImpact of and Frederiksen, 'Consequences Military CivilianRulein Argentina; of Defense andNon-DefensePublicSpendingon Growthin Asia andLatinAmerica'.

TheRole of the Military in Underdeveloped Countries, pp. 94-127; Lieuwen, 'Militarism and Politics

496

DEROUEN AND HEO

However, in her extensive analysis of the role of the military in Latin America, Remmer declared that 'there is no basis for arguing that long-term macroeconomic performance improves with military rule'. Similarly, Feng found that economic growth is less likely during Latin American military regimes for the period 1982-88.75 Of course our research question is slightly different. We focus on military spending - not necessarily military rule - and its effect on economic growth for all of Latin America. We argue that this is an important question for Latin America as a region - independent of regime type. Our findings indicate that technological progress in the region has indeed had a positive impact on growth thus giving credence to one aspect of modernization theory. This is consistent with earlier work that predicted technological growth would yield markedly greater economic growth in Latin America.76 Military spending, by contrast, has thwarted growth. While Murdoch et al. reported a slight regionwide positive impact from defence spending for the years 1954-88, our analysis over a later time period reveals that increasing the defence share of the GDP reduces growth in over two-thirds of the Latin American states. We can attribute these differences to the time horizon, to a different study design (linear vs. non-linear modelling), to the fact that we control for technological progress, or because Murdoch et al. control for schooling.7 In any case, the policy implication from the present results is that increases in defence spending in most of Latin America will have dampening effects on economic growth. After controlling for technological progress and externalities, our model results show that the military sector of the budget in Latin America has not made great strides in modernization since the early 1960s. Murdoch et al. point to one potential reason that spending in the military sector is not an efficient way to modernize. They posited that counter-insurgency efforts in Latin America 'siphon-off' military expenditures from more productive uses such as human capital formation and public works.78In fact, a cursory glance at Table 3 reveals that of the four countries that have positive elasticities with respect to military expenditure, three of them have had relatively low levels of insurgency over the study period (Costa Rica, Dominican Republic and Panama) and two have greater than average democracy scores (Costa Rica and Dominican Republic). To carry this point even further,one may argue that the US Alliance for Progress and other funds tacitly targeted for counter-insurgency efforts have been put to largely non-productive uses. From a counterfactual perspective, were the military not so heavily involved in counter-insurgency and corporate selfinterest efforts, it could potentially be using the resources made available to it more efficiently.
75
76

Growth'. Remmer, Military Rule in LatinAmerica, p. 78; Feng,'Regime,Polity,andEconomic See H. J. Bruton, 'Productivity Growthin Latin America',American Economic Review,

57(1967), 1099-116.

in PublicSpending Growth Asia on et of 77 Murdoch al., 'TheImpact DefenseandNon-Defense andLatinAmerica'. 78 Murdoch al., 'TheImpact DefenseandNon-Defense in PublicSpending Growth Asia on et of andLatinAmerica',pp. 219-20.