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Optimal military spending, trade and stochastic economic growth

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Abstract

Based on the procedure of dynamic programming, this paper investigates the military spending, trade and wealth accumulation in a stochastic endogenous economic growth model. For the Cobb-Dauglas utility function, explicit solutions of the optimal problem of the home country are obtained. Meanwhile, the optimal consumptions of domestic goods and foreign goods, the share of domestic capital stock and foreign bond holdings are derived explicitly. The comparative dynamic analysis shows that when intertemporal substitution in consumption is relative elastic, economic growth has a positive correlation with foreign military spending, has a negative correlation with variance of foreign military spending, and has a positive correlation with variance of capital or bonds if capital and bonds yields the same benefits. However, in the case of inelasticity, variance of foreign military spending may stimulate or weaken economic development.

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Author information

Authors and Affiliations

  1. School of Applied Science, Beijing Information Science and Technology University, Beijing, 100192, China

    Dengshan Wang

  2. Department of Systems Science, Business School, University of Shanghai for Science and Technology, Shanghai, 200093, China

    Dengshan Wang

  3. CEMA, Central University of Finance and Economics, Beijing, 100081, China

    Dengshan Wang & Yan Wang

Authors
  1. Dengshan Wang
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  2. Yan Wang
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Corresponding author

Correspondence to Dengshan Wang.

Additional information

This paper was supported by Training Program for the Major Fundamental Research of Central University of Finance and Economics under Grant No. 14ZZD001, Beijing Nova Program under Grant No. Z131109000413029 and Beijing Finance Funds of Natural Science Program for Excellent Talents under Grant No. 2014000026833ZK19.

This paper was recommended for publication by Editor ZHANG Xun.

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Wang, D., Wang, Y. Optimal military spending, trade and stochastic economic growth. J Syst Sci Complex 29, 736–751 (2016). https://doi.org/10.1007/s11424-015-4168-z

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  • DOI: https://doi.org/10.1007/s11424-015-4168-z

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