Exploring the Role of Institutional Quality in the Crowding-Out Effect of Military Expenditure on Health Expenditure and Outcomes in Africa

This study revisits the long-standing debate on the guns-versus-butter phenomenon, that spending on military activity crowds out non-military expenditure. By focusing on Africa, we conjecture the crowding-out effect of military expenditure on health expenditure beyond government health expenditure, but also private and out-of-pocket health expenditure, and health outcomes. The empirical analysis based on the dynamic two-step system generalized method of moments reveals that omitting institutional quality measures biases the estimated crowding-out effects of military expenditure. After the inclusion, the results indicate that a 10 % increase in military expenditure leads to a 0.40 % decline in government health expenditure, accompanied by 0.01 % and 0.30 % increases in private and out-of-pocket health expenditure, respectively. Regarding health outcomes, the same increase in military expenditure results in a 0.20 % rise in maternal mortality, while infant mortality and life expectancy decline by 0.09 % and 0.01 %, respectively. Further analysis reveals that including the interaction term of military expenditure and institutional quality only reverses the crowding-out effect on government health expenditure and not on private and out-of-pocket health expenditure. For health outcomes, the favorable effect of the interaction term is only evident in reducing infant and maternal mortality rates. We offer policy recommendations to improve fiscal spending on the health sector in Africa as a paramount measure to improve human capital development and provide areas for further empirical contributions.

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