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 ( ), Vietnam Conflict ( ), Gulf War ( ), Bosnian Conflict ( ), and War on Terrorism (2001-present).

UNRESTRICTED RESULTS Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations55 FSignificance F E-64 Coefficientst StatP-value Intercept Govt Military Expenditures (Base YR$ 2007) Active Military Personnel DOD Civilian Personnel Personal Consumption (Base YR$ 2007) E-28 Gross Investment (Base YR$ 2007) E-06 Cold War Vietnam Conflict Gulf War Bosnia Conflict War on Terrorism

RESTRICTED RESULTS Regression Statistics Multiple R R Square Adjusted R Square Standard Error Observations55 FSignificance F E-66 Coefficientst StatP-value Intercept Govt Military Expenditures (Base YR$ 2007) E-05 DOD Civilian Personnel Personal Consumption (Base YR$ 2007) E-30 Gross Investment (Base YR$ 2007) E-06 Cold War Vietnam Conflict Gulf War Bosnia Conflict War on Terrorism

AUTO-CORRELATION? Auto-correlation performed on the unrestricted regression results: Durbin-Watson Statistic: N=56, K’=9 dL = dU = Falls within the Zone of Indecision Coefficient of autocorrelation = (No correlation)

CONCLUSION Military Expenditures do in fact increase GDP, but the effect on GDP is not the same for every military conflict. GDP = GovtExp – DODCiv Cons GrossInv – Cold Viet – Gulf – Bosnia – WOT

SOURCES National Bureau of Economic Research Department of Defense