South Africa: An Econometric Analysis of Military Spending and Economic Growth Alvin Birdi and J. Paul Dunne Introduction There is considerable debate in the literature over the effects of military spending on economic growth in developing economies. Following the early cross country studies, using average values over time and simple correlation techniques, the application of econometric models provided a wide variety of studies, but no clear consensus over the results. What started to become clear was that to understand the dynamics of the relation between military spending and growth it was necessary to focus on relatively homogeneous groups of countries as well as undertaking case studies of individual countries (Dunne, 1996). This chapter provides a contribution to the corpus of case studies by providing an analysis of South Africa, a particularly interesting focus of study because of the nature of its military industrial complex, the characteristics of the economy, and the fact that it has undergone considerable change. In addition, the country has relatively high quality data for a developing economy. While there have been some studies of the relation between military expenditure and economic growth in South Africa, noticeably a recent special issue of the journal Defence and Peace Economics [Vol. 11, No. 6 (2000)], they are by no means exhaustive of the possibilities. This chapter provides a critical review of the approaches taken in econometric analyses of the defense-growth nexus in South Africa and then develops the analysis to overcome perceived deficiencies. New results are then provided using a cointegrating vector autoregressive (VAR) approach. Historical background