THE WAR MACHINE & GDP

Presentation by: David Gomez

PURPOSE

• The purpose of this presentation is to see if military conflicts create a boost in real GDP.

HYPOTHESIS

• Using the GDP model: GDP = C + I + G + NX, where C = expenditures on consumption, I = investment expenditure, G = government expenditure, NX = net exports

• I expect that since the government must increase expenditure to fund military operations, that in fact, military conflicts will increase real GDP.

REGRESSION VARIABLES

• Real GDP is my dependent variable• GOVT Military Expenditures is an exp. variable

which shows the total spending on the military per year.

• Active Military Personnel is an exp. variable showing the total amount of active duty military per year.

• DOD Civilian Personnel is an exp. variable showing total amount of civilian personnel that work for the Department of Defense.

REGRESSION VARIABLES

• Personal Consumption is an exp. variable for annual consumption.

• Gross Investment is an exp. variable for annual investment expenditure

REGRESSION DUMMY VARIABLES

• Six Dummy Variables are utilized in my regression analysis to take a snapshot in time of specific conflicts.

• Each Dummy Variable corresponds with a specific military conflict as follows: Cold War (1953-1962), Vietnam Conflict (1959-1975), Gulf War (1990-1991), Bosnian Conflict (1994-1995), and War on Terrorism (2001-present).

UNRESTRICTED RESULTSRegression Statistics

Multiple R 0.999598951

R Square 0.999198062

Adjusted R Square 0.999015803

Standard Error 98260960895

Observations 55

F Significance F  

5482.307699 1.15986E-64

  Coefficients t Stat P-value

Intercept 513094206142.33 1.232648336 0.224252822

Govt Military Expenditures (Base YR$ 2007) 1.673067067 4.088403432 0.000181617

Active Military Personnel 38544.5645 0.57978812 0.565014706

DOD Civilian Personnel -712229.8236 -1.777139616 0.082458408

Personal Consumption (Base YR$ 2007) 1.161805495 25.81925032 3.24157E-28

Gross Investment (Base YR$ 2007) 0.96223904 5.152537093 5.8169E-06

Cold War -164074811029.41 -2.040513736 0.047327915

Vietnam Conflict 42073542047 0.910670521 0.367431157

Gulf War -220593797982.34 -2.798045996 0.007600762

Bosnia Conflict -30594347308 -0.397164187 0.693166469

War on Terrorism -141275120333.43 -1.400182037 0.168471057

RESTRICTED RESULTSRegression Statistics

Multiple R 0.999595886

R Square 0.999191935

Adjusted R Square 0.999030322

Standard Error 97533488877

Observations 55

F Significance F

6182.622483 1.68681E-66

  Coefficients t Stat P-value

Intercept 465879897783.95 1.149787025 0.256305708

Govt Military Expenditures (Base YR$ 2007) 1.558860432 4.378337917 7.04774E-05

DOD Civilian Personnel -551573.9801 -1.91915735 0.061319603

Personal Consumption (Base YR$ 2007) 1.17008888 27.62677719 7.28544E-30

Gross Investment (Base YR$ 2007) 0.941436201 5.175157872 5.12297E-06

Cold War -154563845588.17 -1.978171686 0.054051291

Vietnam Conflict 57679029132 1.547498783 0.12874773

Gulf War -230385773421.97 -3.014014946 0.004224662

Bosnia Conflict -33593078401 -0.440338921 0.661799645

War on Terrorism -126171009762.07 -1.304026929 0.198855614

AUTO-CORRELATION?

Auto-correlation performed on the unrestrictedregression results:Durbin-Watson Statistic: 1.43469985N=56, K’=9dL = 1.057dU = 1.785Falls within the Zone of IndecisionCoefficient of autocorrelation = 0.28265 (No

correlation)

CONCLUSION

• Military Expenditures do in fact increase GDP, but the effect on GDP is not the same for every military conflict.

• GDP = 465880000000.00 + 1.599GovtExp – 551573.98DODCiv + 1.17Cons + 0.9414GrossInv – 154564000000.00Cold + 57679029132Viet – 230386000000.00Gulf – 33593078401Bosnia – 126171000000.00WOT

SOURCES

• National Bureau of Economic Research• Department of Defense