The Optimal Orchestration of Military Expenditure for Economic Growth in Africa: A Non-Linear Threshold and Regional Heterogeneity Analysis

Abstract

This study presents an extensive empirical investigation into the non-linear relationship between military spending and economic growth, backed by data from 45 African countries for the period of 1990-2023. We relied on an extended Solow growth model and a multi-method econometric approach consisting of System GMM, Panel ARDL, and Panel Threshold Regression; to deal with the problems of endogeneity, dynamic panel bias, and heterogeneity. The results of the analysis confirm in a robust manner the non-linear Inverted U-shaped relationship, with the growth-maximizing military spending threshold endogenously determined by the panel threshold regression at around 2.4% of GDP. It merits consideration that the coefficient of this threshold is yielded by a static PTR model, which constitutes a methodological constraint as it does not integrate the serial dependence in growth data fully. The correlation is marked by considerable regional heterogeneity; North Africa has a higher threshold of 3.2% of Gross Domestic Product (GDP) while the conflict areas (e.g., the Sahel) are experiencing economic losses. However, above all, the caliber of institutions is recognized to be the main factor moderating the situation where better governance amplifies the growth returns of military spending through the mechanisms of efficiency and accountability. At the same time, the findings also reveal a significant temporal trade-off: the immediate interaction of security and higher aggregate demand is slowly superseded by the long-term crowding-out effect on human and physical capital accumulation. The projections demonstrate that the period of investment in education and governance reforms may not be mandatory before the associated prosperity dividends become sizeable if such a policy approach is complemented by the reallocation of financial resources from military spending cuts to the mentioned areas. Thus, it is evident that context-specific fiscal rules within the frame of institutional reinforcement and regional security cooperation are the ultimate pre-requisite for Africa to tap into the potential of the security-growth nexus amidst its poly-crisis situation.