This literature review aims to review the debate as to whether military expenditure has a positive

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This literature review aims to review the debate as to whether military expenditure has a positive or negative impact on economic growth in Israel, in order that gaps in the literature can be identified with a view to identifying a research question for this dissertation. This literature review will accordingly examine the main schools of thought in regard to the impact on economic growth.

The connection between military expenditure and economic growth has been analyzed from several perspectives, at the industrial, national and private-sector firm levels. Other issues have been researched, such as relationships between civilian and defence research and development and the potential for development of scientific and engineering
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Judging by the data, one would most likely conclude that an enhanced proportion of military consumption promotes growth.

Deger and Sen (1995) claim that there is a minimal number of definitive empirical results and provide conceptual reasons for these results. They focus on concepts such as causality and simultaneity that may have affected the results. Suggestions to resolve this flaw consisted of a mixed-time series, which was used by Macnair, Murdoch Pi and Sandler (1995) to achieve positive findings for a small number of NATO countries. The results vary and Ram (1995) surveys the discussions of the various research approaches.

A fundamental issue with the combination of cross-section studies across countries with time-series studies of a single country is that there is no market price for military output and the factor payments are funded by civilian tax revenue. Deger and Sen (1995) produce a more appropriate model which takes into account the nature of the public good provided by military security and the need for it to be publicly funded. Viewing defence expenditure as a public good enables researchers to take into account a range of interactions between military expenditure and economic growth. The interactions considered are a) increased security, which directly improves social welfare b)
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