| This paper used a series of two way fixed effect models to test the hypothesis that higher military expenditure will boost the quantity and quality of innovation. The dataset in this paper is a merged dataset from the World Development Indicators (WDI) dataset and the Quality of Government (QOG) dataset. It covers 159 countries between 1989 and 2009. Unlike the existing studies, this paper used multiple indexes to measure innovation, including GNI, Industrial Output, Service Output, High-Tech Exports, the number of Patents, and the number of Scientific Articles. These six independent variables would jointly capture the full essence of innovation in terms of both quality and quantity. Moreover, Military Expenditure per Soldier and its lags are used as the dependent variable of interest. A series of other control variables are used to capture different countries' government quality, educational level, financial market conditions, and infrastructure. Four of the innovation indicators (GNI, Industrial Output, Service Output, High-Tech Exports) have shown unambiguously positive correlation with military innovation. Only two indicators (the number of Patents and the number of Scientific Articles) show relationships with military expenditure that are insignificant. Considering the fact that military-related Patents and Scientific Articles are underreported due to the military secrecy policy, I am confident that, if all the military innovations are disclosed, all six proxies for innovation would show evidence that military expenditure can boost innovation. Finally, this paper provides reasonable grounds for policymakers to reevaluate the use of their defense budget. |
