The impact of military tension on economic growth: comparative study of Israel and South Korea

Abstract

In development literature, there is a debate over what exactly causes rapid economic growth. There is a variety of opinions starting with market liberalization, big amount of FDI, support to education and healthcare and ending with good governance and development aid. This thesis suggests an alternative approach, when it comes to development – “people respond to incentives” and none of the well-proven strategies will work if the incentives are not right. Thesis suggests that military tension can be one of those motivators. Paper examines economic effect of military industrialization in Israel and South Korea, and more specifically spin-off effects of defense Research and Development. These countries are interesting because they spend the highest percentage of their GDP on Research and Development and bigger portions of these funding go to defense R&D. The research paper found out that in South Korea defense R&D has a significant correlation to innovation indicator which is patent applications per year. In Israel defense R&D data is classified which gives us a basis to think that their defense R&D is even higher than South Korea’s. Data indicating the money spend in other fields of R&D in Israel do not have a significant correlation with innovation indicator. In sum, the thesis suggests that there is considerable evidence to assume that military tension has a positive impact on growth rate. Also, thesis assumes that in the case of Israel impact might be less because the positive impact that defense R&D has on growth - compensates crowding out effects overall military burden intensified by wars.