Guns versus Butter: A Budgetary Trade-Off in the MENA Region?

Abstract: Although the debate has become less heated in the post-Cold War period, no conclusive evidence has been reached regarding the economic impact of military spending. The aim of this paper is to investigate the existence and magnitude of budgetary trade-offs between military spending and human capital spending in the MENA (Middle East and North-Africa) region. It is striking that the guns versus butter hypothesis has not been studied extensively for the MENA region, given the high military burden this region faces. Due to limited data availability we can only include eight countries in our analysis. We therefore choose to employ the least squares dummy variable fixed effects model to control for country-specific heterogeneity. Our results suggest that there indeed exists a negative trade-off between military and human capital spending, with the opportunity costs of defense spending being higher for education than for health spending. While the level of economic development can mitigate the negative trade-off between defense and education spending, the level of resource wealth and democracy are not found to have a significant impact on the budgetary trade-offs.