Education and Finance

The Relationship between the Ratio of the Education and Military Expenditure with the Per Capita GDP: A Comparative Study among the South, South East and East Asian Countries

Written by Web Editor
KAZI SAMEEO SHEESH



Abstract:
The objective of this paper is to explore the relationship between the ratio of education and military expenditure with the per capita Gross Domestic Product (GDP) and the focused regions are the South, South East and East Asia. The countries were selected based on certain criteria : (a) the common historical background and the presence and absence of the democratic rule (India, Pakistan, South Korea, North Korea), (b) Transformation from Autocratic rule to Democracy), (c) Existence of Internal conflict (Sri Lanka, Indonesia). This study shows that for the countries of criterion a (presence and absence of democracy) and criterion b (transformation from autocracy to democracy), the countries with higher ratio of education to military expenditure also achieved higher per capita income. But for criterion C (existence of Internal conflicts), no particular relationship can be established. Thus, it is possible that in case of existence of internal conflicts, military expenditure may help to secure the investment climate and so the GDP per capita grew up. Otherwise, the higher expenditure on education than the military expenditure seems to play a positive role to increment the per capita GDP.
The most theoretical and empirical studies asserted a positive relationship between educational expenditure and economic growth, but it was dubious for the military expenditure. Based on the experience of some South, East, and South East Asian countries this paper also show this same sort of result.

Key words: Gross Domestic Product (GDP), Per capita income, Expenditure on Education, Military Expenditure, Economic Growth, Newly Industrialized Countries (NICs), Newly Industrialized Economies (NIEs), High Performing Asian Economies (HPAEs)

The objective of this paper is to explore the relationship between the ratio of education and military expenditure with the per capita Gross Domestic Product (GDP) and the focused regions are the South, South East and East Asia. Most of these countries achieved their independence from the colonial masters after World War II1.  During the last few decades, these countries have experienced positive economic growth, but this pace was not similar2. At the same time, all these countries have realized the importance of education for the economic development and that is reflected by their expenditure on education. Beside this, the involvement of the military in politics3 was also noticeable in some of these countries as well as there are examples of people’s movement to establish democratic rights. Moreover, a hostile relationship4 remained between some of these countries. This commitment to education, external relationship, involvement of military in politics and democratic practices reflect on the expenditure pattern.  The pattern of expenditure on different sectors plays a role in influencing the economic growth and this paper is going to find the relationship between expenditure on education and military expenditure with economic growth.


This paper is divided into seven sections. As earlier it has been mentioned that the pattern of expenditure influence economic growth and section II highlights about the allocation of resources and economic growth. The sections III, IV discusses the role of education and military expenditure to economic growth respectively. In section III and IV, at first, this paper discusses the role of expenditure on education and military for economic growth with conceptual arguments (argument based on logic or reasoning) as well as empirical evidences. Later on, section V portrays the experience of the South, South East and East Asian countries based on the certain criteria and the following section VI presents the comparison between the countries based on the criteria mentioned in the preceding section.  The conclusion and the limitation are mentioned in the last section.
II. Economic Growth and Allocation of Resources
This section focuses on the allocation of resources for economic growth since the expenditure pattern plays a role to determine the economic growth. For this discussion let us first talk about the fundamental questions regarding economic production or growth are- ‘What? How? and For Whom?’ The question ‘what’ asserts which goods and services the consumers demand and producers supply. Then, the questions come how the good and services are produced and the question ‘how?’ describes the mode of production, level of investment, technology, resources and so on. Finally, ‘for whom’ states that what portions of population do demand those goods and services and how much would be beneficial for them. Thus, these three fundamental questions focus on the demand and supply side of economic production or growth. Based on these fundamental concerns the patterns of allocation of resources for different sectors are determined and earlier it has been mentioned that the pattern of expenditure is important for economic growth.
Resources are constrained- is another concern for economic growth. The land, natural resources, physical capital and human capital are the factors to form and enhance economic growth. For any country, these resources are constrained, so, to promote economic growth, each country faces a strategic challenge regarding the issues of the allocation of resources in various sectors. The country has to decide how much they would allocate for agriculture, industry, administration, education, health, defense and so on. Since the resources are limited, thus, the allocation of resources in one sector has trade-offs with other sectors. Thus, the country has to decide the priority as well as necessity for sector-wise allocation of resources. This decision plays the crucial role to shape the economic growth. Moreover, the country or state has to be concerned with the investment to increase economic growth. To attract the investors as well as establish a friendly-environment for investment is a prime responsibility of the state. The political stability, national security and efficient administrations are the pre-requisite for the country to attract investors. (Barro 1997) Thus, to allocation of resources for the defense, administration, security sectors are important.
At the same time, augmentation of the productivity of resources in order to promote economic growth is very important. Here, human resource development can increase the productivity of the labor and so human resource with higher productivity can play a vital role to continue economic growth. Better education and improved health are the key factors for enhancing human resources. So, the state has to allocate a substantial amount of resources for education and health sectors.
Earlier, it has already been mentioned that to allocate resources in one sector has a trade-off in respect to economic growth with others due to constraint of resources. Devrajan, Swoop and Zoo (1996) shed light on the ‘productive’ and ‘unproductive’ sectors and emphasized that due to fiscal constraint, the expenditure pattern should be designed in such a way by allocating higher proportion on ‘productive’ sectors and lower to ‘unproductive’ sectors. Barro (1997) identified high levels of schooling, low fertility, rule of law, favorable terms of trade as the vital instruments for economic growth and at the same time showed a positive relationship between the education and military expenditure with the economic growth and considered these expenditures as an investment. On the contrary, Kormendi and Maguire(1985), Grier and Tullock (1987) and Summers and Heston (1988) identified defense and education expenditure as  unproductive and marked them as consumption expenditure. (As quoted in, Devrajan, Swoop and Zoo 1996). This paper focuses on the trade-off between the expenditure on education and defense sectors in respect to economic growth.
III. Education and Economic Growth
This section will discuss the views regarding the role of education to promote economic growth. At first, different theoretical and conceptual views are discussed and then, empirical evidence is presented to show the relationship between education and economic growth.
Michaelowa (2000) showed direct and indirect effect of education on micro and macro economy (figure 1).  Figure1 shows that education increases worker’s productivity and based on the assumption of the perfect competition, e.g., if a worker is paid according to the marginal productivity, then better educated workers should earn more. Moreover, Michaelowa (2000) focused the positive externality of education, such as, the educated parents may be more informed and aware of the family planning and this would result a small family size. In addition to this, he also added that the children having educated parents would have better health than the children of the uneducated parents. That would influence the macro economy, since the economy would get productive labor force and population growth would be lower. In addition to this, Michaelowa (2000) viewed that further education may influence the income of the neighbors also. To understand this, he drew a simple example, if educated farmers implement new agricultural techniques, then their neighbors may observe this and imitate the technology. Thus, the benefits may be spread with in the community and as a whole the total production would increase. In this way, both direct and spill over effect of education can enhance the economic growth.


Figure 1


The theoretical analyses on the relationship between education and economic growth were developed gradually. Two of the earliest proponents of the economic growth model were Sir Roy Harrod and Evsey Domar. During 1940s they developed the Harrod-Domar model. The Harrod-Domar model explained the economic growth in terms of the level of saving and productivity of capital but the Harrod-Domar did not incorporate the role of labor as a factor of production in the model. The Harrod-Domar model was extended by Robert Solow and T.W.Swan. During 1950s, Solow and Swan extended the model5 by adding labor as a factor of production. But here the scales of the returns from both factors (capital and labor) were assumed constant.  During the 1980s the ‘endogenous growth model’6 (details in the Appendix) was developed. The endogenous growth model incorporated the human capital, human resource development. It is noteworthy to mention that to develop human resource, education plays a key role, as a vital instrument for economic growth. (McMahon 2002). The endogenous growth model extended the concept by including the human components and asserts economic growth in the form of new ideas to sustain the long run growth and escape the diminishing return of the capital (Barro & Martin 2004). These developments have recognized the role of human capital which is stimulated through education and spreading of new knowledge for promoting, as well as sustaining, per capita economic growth (McMahon 2002). This endogenous growth model suggests that investment in education and research can help to facilitate the growth process.

Moreover, the expansion of education crates a variety of opportunities and stimulates new sorts of economic activities which create a positive impact on the economic growth. Todaro(2003) expressed that the expansion of educational opportunities  has a vital role to aggregate economic growth of the developing countries and highlighted the different  relationships. Education creates a class of educated professionals in governmental services, public corporations, private services and so on. Expansion of education helps to create a productive labor force and provide widespread employment and income-generating scopes for different jobs such as, teachers, school and construction workers, textbook and paper printers, uniform manufactures and related workers. Most important is that expansion of education would help to spread the modern attitude to the diverse segment of society.

In addition to this, empirical evidence also shows that educational expenditure plays an important role for stimulating economic growth7 (Some examples are given in Appendix). Since this paper highlights the East, South East and South Asian Countries, thus, the examples are drawn from these regions.

Hence, the East Asian countries achieved a high level of growth during the last four decades of the 20th century (which was some time called ‘Asian Miracles’). Let us have a brief outline of this so-called ‘Asian Miracle’. The Asian Miracle started with Japan. After the Second World War, Japan was devastated and ruined, but in just two to three decades, it became as developed as any western industrialized nation. But Japan was already quite advanced in industry even before the War. The real Asian Miracle happened in other countries, which were truly backward even as late as 1960. It started with the East Asian ‘gang of four’: South Korea (Republic of Korea), Taiwan, Hong Kong and Singapore. They started to develop in the early 1960s. Then emerged the three newly industrializing economies (NIEs) or countries (NICs) of South-East Asia: Thailand, Malaysia and Indonesia. They started to develop from the early 1970s. Together, these eight countries have been described by the World Bank as High-Performing Asian Economies (HPAEs).(World Bank 1993) McMahon (2002) asserted that huge initial investment in human capital by households and government played a very important role for the high per capita growth in East Asia and UNDP (1988) mentioned that 60 to 90 percent of the growth of the East Asia can be explained by the primary education.

However, starting with mostly the same economic status after World War II, the South Asian countries are also achieving a moderate level of economic growth but compared to the East Asian countries it is lower. UNDP (1988) showed that in South Asia 76% of the total wealth was contributed by the human and social capital, vis-à-vis, natural and physical capital contributed 9% and 15%, respectively. In addition to this, Behrman and Birdsall (1983) claimed that priority to higher investment in basic education and quality of education in the South Asian countries can support to achieve high returns. (As quoted in UNDP 1988)
The next section will discuss about the role of military expenditure and economic growth.

IV. Military and Economic Growth
This section presents the conceptual and empirical arguments regarding the relationship between military expenditure and economic growth. There remain arguments on both positive and negative relationship of military expenditure and economic growth. Conceptual arguments (arguments based on logic and reasoning) on the role of military expenditure and economic growth are mainly based on the four broad categories – resource allocation and mobilization, organization of production, socio political structure and external relations.(Dager & Smith 1983) At the same time, there remains the same sorts of arguments based on the empirical evidence also, for example, Benoit (1973) did an empirical study and viewed a positive relationship between military expenditure and economic growth and that view was also encountered by Grober and Porter (1989).

To find both cost and benefits of military expenditure, the opportunity cost of military expenditure is needed to be analyzed. (Cuarsema & Reitschuler 2006, Ocal, Sezin & Yindrim 2005) Due to resource constraint the expenditure on military diverts resources and this allocation to military sector may effect investment, savings and consumption. Moreover, the expenditure on military can cause to curtail the education and health expenditure. (Harris, Kelly & Paranowo 1988). Also high military expenditure can create inflation and thus force a reduction in savings and investment. (Dager & Smith 1983) Moreover, if the weapons are imported then it may affect balance-of-payment (if the price of import is greater than the export). At the same time, military demand can also create the backward linkages (supporting industries for production), exploitation of the resources and open opportunities for employment by mobilizing the surplus labor. Controlled inflation can also create monetary flow which can stimulate the economy (Dager & Smith 1983, Cuarsam & Reitschuler 2006) Therefore, there remain arguments on both positive and negative sides of the relationship between the military expenditure and economic growth.

Moreover, the military expenditure can help to organize the production (infrastructure support, use of technology), the effects of which can be argued in both positive and negative ways. The military can help to build the public infrastructure (roads, power supplies) as well as welcome new technology. These can have a positive effect on the productivity. (Cuarsema &  Reitschuler 2006. Dager & Smith 1983,). Military can help to provide technical training to the people and create scope for the employment. In this way, the military expenditure can contribute to increase economic growth. On the other hand,  Dager & Smith (2006) presented the contrary argument by saying that the military infrastructure, for example, roads are primary built considering the defense and security needs and these roads may be have little civilian use. In addition to this, the defense technology is mostly capital intensive. Since one of the common features of the less developed (LDCs) and developing countries is high population, thus, this capital intensive technology may not help to solve the unemployment problem. Thus, the organization of the production issues of the military expenditure cannot conclude any particular answer (positive or negative) of its relationship with economic growth.

Furthermore, military’s role on the administration and social activities cannot depict a particular conclusion regarding the relationship between military expenditure and economic growth. Military can play a role to influence administration, social structure, internal security and propagate modern ideology to the mass people. In this way, the military expenditure may play a positive role on production activities.(Cuarsema & Reitschuler 2006, Dager & Smith 1983,) Against this it is argued that military expenditure by its nature is very rigid and hierarchical.(Dager & Smith 1983) So, it cannot ensure the participation of the mass population of the LDCs and developing countries. Hence, the arguments on the socio political structure also draw the ambiguous conclusion.

Lastly, the military is directly linked with the issues of the external relationship of a country, which has mixed blessing on the economy. By ensuring security from the foreign countries military expenditures can encourage investment and capital accumulation. Moreover, military can attract large amount of foreign aid. But the counter argument say in the LDCs the military is often very loyal to the imperialist power and it generates the surplus to transfer out of the country. (Dager & Smith 1983) While, foreign aid may discourage domestic savings as well as impede the investments. Due to lower domestic savings and investment, the economic growth can be slowed down. Thus, the relation of economic growth with the external relation issues of military expenditure is also equivocal.

Likewise the conceptual arguments, the empirical evidence also shows the dubious conclusion between the relationship of the economic growth and the military expenditure. Based on the cross-section examination of the 44 developing countries, Benoit (1973) claimed that one percentage point of GDP added to the military budget might cause to decline the civilian growth rate by one fourth of 1% per year but it was compensated due to about 70% of the growth produced by this additional GDP expenditure on the military. But Grobar & Porter (1989) refuted the Benoit’s conclusion by re-estimating the study with different sample countries and showed that military expenditure retarded the economic growth. So, the empirical evidence also showed counter results regarding the relationship between economic growth and military expenditure.

Thus, no particular relationship (positive or negative) has been found between the military expenditure and economic growth. The next sections will discuss the relationship between the expenditure of education and military with the economic growth for the South, South East and East Asian Countries.


V. The South, East and South East Asian Countries: Economic Growth, Expenditure on Education and Military
In the earlier sections the relationship between the expenditure on education ad military with the economic growth has been discussed separately. This section discusses the state of economic growth, expenditure on education and military of the selected South, South East and East Asian counties. The democratic rule, internal conflict and so on may play role to allocate the resource on military (since, it has been shown that no particular, positive and negative, relationship has been found between military expenditure and economic growth). The countries were selected based on some criteria- the common historical back ground, the presence and absence of democratic rule, the transformation from autocratic rule to democracy (the countries which were experienced autocratic rule and later established democratic practice), internal conflicts (Table 1). Later on, the performance of the each selected country has been discussed.

Table 1
CriteriaRegion and Country
A. Common Historical background
Presense of democracy
Absense of democracy
South Asia – India
East Asia – South Korea
South Asia – Pakistan
East Asia – North Korea
B. Transformation from autocratic rule to democracySouth Asia – Bangladesh
South-East Asia – Philippines
C. Internal ConflictsSouth Asia – Sri Lanka
South-East Asia – Indonesia
Table 2: Country Profile

Country

Items

Year

1976-80

1981-85

1986-90

1991-95

1996-2000

2001-2005

Bangladesh

Average GDP per capita

(Constant US$ 2000)

235.27

248.22

264.70

289.34

330.43

387.62

Average Education Expenditure (%of GNI)

0.66

0.89

1.14

1.32

1.40

1.8

Average Military Expenditure   (%of GDP)

1.15

1.28

1.43

1.22

India

Average GDP per capita

(Constant US$ 2000)

221.65

245.98

292.07

340.28

423.75

519.34

Average Education Expenditure (%of GNI)

2.83

3.22

3.63

3.53

3.69

3.99

Average Military Expenditure (%of GDP)

3.46

2.83

2.84

2.90

Indonesia

Average GDP per capita

(Constant US$ 2000)

354.04

444.53

544.52

735.63

826.74

876.48

Average Education Expenditure (%of GNI)

0.67

0.58

1.08

1.13

Average Military Expenditure    (%of GDP)

1.85

1.64

1.18

1.03

Pakistan

Average GDP per capita  (Constant US$ 2000)

302.92

369.02

437.40

494.10

521.10

553.32

Average Education Expenditure (%of GNI)

1.55

1.77

2.10

2.27

2.32

2.30

Average Military Expenditure   (%of GDP)

6.82

6.53

5.10

3.99

Philippines

Average GDP per capita (Constant US$ 2000)

934.33

941.88

872.42

884.85

961.95

1053.60

Average Education Expenditure (%of GNI)

2.09

1.52

1.99

2.30

3.15

2.83

Average Military Expenditure (%of GDP)

1.43

1.34

1.19

0.947

South Korea

Average GDP per capita (Constant US$)

3068.74

38688.50

5727.99

8054.53

10015.82

12274.48

Average Education Expenditure (%of GNI)

2.53

3.81

3.05

3.48

3.27

3.82

Average Military Expenditure (%of GDP)

3.82

3.09

2.64

2.47

Sri Lanka

Average GDP per capita (Constant US$)

418.12

489.70

548.85

684.32

784.53

924.84

Average Education Expenditure (%of GNI)

2.42

2.00

2.21

2.37

2.67

2.55

Average Military Expenditure (%of GDP)

1.94

3.50

4.30

3.01

(Source: World Development Indicators, World Bank 2005)
The performances of the economic growth and pattern of the expenditure on education and military for the last thirty years are discussed in the following. Here, at first, a brief notion of the structure of the government of each country has been discussed and then the performance of economic growth and the pattern of education and military expenditure have been illustrated.


India
Among the democratic countries, based on the population India is referred to the largest democracy. India has a federal form of government and a bicameral (two legislative or parliamentary chambers) parliament operating under a Westminster-style parliamentary system.  (India, 2006)

For the last few decades, India has achieved an admirably high the economic growth. Based on the purchasing power parity, the GDP of India was $3.611 trillion (estimated in 2005) which is the fourth largest economy in the world. The GDP per capita increased for more than double for the last three decades. During 1976-80 the average per capita GDP was $221.65, which became $519.34 in 2001-2005. (Table 2, in the appendix) The agriculture, handicrafts, textile, manufacturing, and a multitude of services contributed to the India’s economy. The service sectors are a growing and playing an increasingly important role of India’s economy. In this digital era, a significant number of young and educated populace, who are fluent in English, are gradually transforming India as an important ‘back office’ destination for global companies for the outsourcing of their customer services and technical support. India is a major exporter of highly-skilled workers in software and financial services, and software engineering. Thus, human capital is playing a vital role in the economy of India.(Economy of India 2006)

India has consistently increased its share of public expenditure in education sector and decreased the share of military expenditure. In the second half of 1970s, the average share of education expenditure was 2.83% of the GDP, which was increased at 3.63% in the second half of the 1980s and it became 3.99% during 2001-2005.(Table 2) On the other hand, the share of military expenditure of the total GDP declined. It was average 3.46% of the total GDP during 1986-90. In 1990s it declined to about 2.84% (2.83% and 2.84% in 1991-95, 1996-2000 respectively). For the period of 2001-2005, it was 2.90%, which was slightly higher than that of 1990s but lower than between the periods of 1986-90. (Table 2)

Hence, the per capita GDP of the India grew up for the last decades and at the same time the share of expenditure on education also increased while the share of expenditure on military was declining. During 1986-90 the proportion of education to military expenditure was 1.04:1 which rose as 1.33:1 and the same time the per capita GDP increased more than 1.5 times. Thus, in India the ratio of education to military expenditure was high and at the same time India was maintaining a positive trend of economic growth.


Pakistan
Earlier it has been mentioned that the presence and absence of democracy may play a role for expenditure of military. On the contrary to India, the practice of democracy is absent in Pakistan. According to the constitution Pakistan is declared as federal democratic republic with Islam as the state religion. The semi-presidential system includes a bicameral legislature consisting of a 100-member Senate and a 342-member National Assembly. The President is the Head of State and the Commander in Chief of the Armed Forces and is elected by an electoral college. The Prime Minister is usually the leader of the largest party in the National Assembly. Each province has a similar system of government with a directly elected Provincial Assembly in which the leader of the largest party or alliance becomes Chief Minister. Provincial Governors are selected by the Provincial Assemblies on the advice of the Chief Minister. But in reality the military of Pakistan has played an influential role in mainstream politics throughout Pakistan’s history, the military Presidents ruled from 1958–71, 1977–88 and from 1999 onwards.(Pakistan2006)

Pakistan is a developing country with the world’s sixth-largest population, and an economic growth rate that has been consistently positive since a 1951. At purchasing power parity, Pakistan GDP in 2006 was estimated at approximately $424.6 billion. The average per capita GDP was increased from $302.92 to $555.32 between the period 19976-80 and 2001-05. (table 2) Pakistan did wide-ranging of economic reforms which help to accelerate growth especially in the manufacturing and financial services sectors. (Pakistan 2006)

Pakistan has increased its share of public expenditure in education sector but the share of education expenditure is lower than the share of military expenditure. For the period of 1976-80, the average share of education expenditure was 1.55% of the GDP, which was increased at 2.32% in the second half of the 1990s and remained almost same (2.3%) during 2001-2005. (Table 2) Yet, the share of military expenditure of the total GDP declined but the proportion is still higher the share of education expenditure. It was average 6.82% of the total GDP during 1986-90. It declined to 6.53% and 5.10% in 1990-95, 1996-2000, respectively. For the period of 2001-2005 it was 3.99%, which is lower than that of 1990s as well as the periods of 1986-90. (Table 2)

It is noteworthy that the per capita GDP of the Pakistan has been increased over the decades.  At the same time, the share of expenditure on education also increased while the share of expenditure on military has been declined. But the share of military expenditure is still higher than that of education. During 1986-90 the military expenditure was three times higher than education expenditure, which decline as 1.7 times in     2001-5, the same time the per capita GDP increased 1.2 times. Thus, in spite of the lower the ratio of education to military expenditure, the GDP per capita of Pakistan is going up.


North Korea
Likewise, Pakistan the practice of democracy is absent in North Korea. The Democratic People’s Republic of Korea (North Korea) is one of the few remaining Communist states. The government is dominated by the Korean Workers’ Party (KWP), to which 80 percent of government officials belong. Minor political parties also participate in elections; although in practice present no opposition. North Korea has been characterized by a professor at the American Strategic Studies Institute as “highly repressive, heavily militarized, strongly resistant to reform, and ruled by a dynastic dictatorship that adheres to a hybrid ideology. While distinctive, North Korea is an orthodox communist party-state best classified as an eroding totalitarian regime.” (North Korea 2006, page 1)

Here it is worth to mention that the data of the North Korea is not easily accessible or available. Thus, this paper cannot present a substantial data.

The socialist economy of the North Korea has been stagnant since 1970s. The industries of the North Korea are publicly owned and they produce different manufactured goods. Based on the purchasing power parity the estimated GDP of the North Korea was $40 billion in 2005.  And the South Korean government’s estimate placed North Korea’s GNP in 1991 at US$22.9 billion, or US$1,038 per capita. In 2005, the agriculture, industry and service sectors contributed 30.2%, 33.8% and 36% respectively. (North Korea 2006)

Education is free and compulsory in North Korea for ten years. In the late 1980s, some 1.5 million pupils were enrolled annually in elementary schools, and another 2.8 million students attended vocational and secondary schools. The principal institution of higher education is Kim Il Sung University (founded in 1946) in P’yŏngyang. Total enrollment in some 280 institutions of higher education exceeds 300,000. The literacy rate is estimated at about 95 percent. (North Korea, 2006)

The military or the defense spending of the North Korea is very fluctuating and also the figures are sometimes doubtful. For example, defense spending, as a share of total expenditures, has increased GDP significantly since the 1960s from 3.7 % in 1959 to 19 % in 1960, and, after averaging 19.8 % between 1961 and 1966, to 30.4 % in 1967. After remaining around 30% until 1971, the defense share decreased abruptly to 17 % in 1972, and continued to decline throughout the 1980s. Officially, in both 1989 and 1990 the defense share remained at 12 percent, and for 1991 it was 12.3% with 11.6 % planned for However, Western experts’ estimate that actual military expenditures are higher than budget figures indicate. (North Korea 2006, page 1)


South Korea
The South Korea has a liberal democracy and it is based on a presidential republican system. Here the powers are shared between the president, legislature, and judiciary. The current Sixth Republic began with the last major constitutional revision in 1988. There was a military coup in South Korea in 1962.(South Korea 2006)
The South Korea is the tenth largest economy in the world (fourteenth largest by purchasing power parity), and the third largest in Asia, behind only Japan and China (fourth behind China, Japan, and India by purchasing power parity). South Korea is noted as one of the ‘East Asian Tigers`, for achieving rapid economic growth after the World War II. The South Korean economy is credited for moderate inflation, low unemployment, an export surplus, and fairly equal distribution of income characterize this economy. One of the surprising facts is that in South Korea the per capita GDP was only $100 in 1963, exceeded $20,000 in 2005. (Economy of South Korea, 2006) Table 2 shows that the average per capita GDP (constant price at 2000) of the South Korea has been increased by about four times from 1976-80 ($3068) to 2001-2005 ($12274).

The education expenditure of the South Korea has been increased and military expenditure over time. The average education expenditure during 1976-80 was 2.53% of the GDP and it became 3.82% during 2001-05. (Table 2)    On the other hand, the share of the military expenditure of the South Korea was reduced overtime. The average military expenditure as the percentage of GDP was 3.82 during 1986-90 and it reduced to 2.47 in 2001-05.

For the last thirty years the South Korea has achieved a remarkable economic growth and the per capita income increased more than four times. It is also visible that South Korea has increased its share of expenditure in education and decreased the share of expenditure on military. During 1986-90, the military expenditure was higher than that of education (During 1986-90, the average share of education and expenditure 3.05% and 3.82%, respectively) but for the period of 2001-05 the share of education expenditure (average 3.82%) was higher than that of military expenditure (average 2.47%), while the per capita was almost doubled during this periods. Thus, during the duration of higher ratio of education to military expenditure, the per capita GDP grew at a higher rate also.

Now, let us discuss about two countries those had experienced the military rule and then transformed to democracy.


Bangladesh
Bangladesh has a parliamentary system of democracy. The Prime Minister is the head of the government. The President is the head of state and it is a largely ceremonial post and the President is elected by the legislature every five years. Bangladesh has instituted a unique system of transfer of power; at the end of the tenure of a government, power is handed over to members of a civil society for three months, who run the general elections and transfer the power to elected representatives. This system was first practiced in 1991 and institutionalized in 1996. During 1975-90 Bangladesh had experienced the military or autocratic rule and Bangladesh has long history of struggle to establish democracy.(Bangladesh,2006)

Bangladesh is considered as an underdeveloped and overpopulated country. The GDP at purchasing power parity is $275billion (2004) and per capita income was $440 (2004), Yet, the country has made impressive progress in human development by focusing on increasing literacy, achieving gender parity in schooling, and reducing population growth.(Economy of Bangladesh 2006) For the last three decades the per capita income has been increased by 1.6 times, e.g., the average per capita income during 1976-80 was $235.27 and it has increased to $387.62 in 2001-05. (Table 2)

Bangladesh increased its share expenditure on education and there remain no particular trend of the military expenditure. For the last three decades the share of expenditure has been increased about three time; table 2 shows that for the period of 1976-80 the average share of expenditure on education was 0.66% and it went up to about 1.8% during 2001-05. While, up to 2000 the share of expenditure on military increased and then it declined. The average share of military expenditure on military was 1.14%, 1.28% and 1.43% during 1986-90, 1991-95, and 1996-2000, respectively. But it reduced to 1.23% in 2001-2005.

It is shown from the table 2 that up to 2000 the share of military expenditure was higher than that of education expenditure. But during 2001-05 the share of education expenditure exceeded the share of military expenditure. At the same time, the GDP per capita of Bangladesh has been increased consistently. So, in Bangladesh the GDP per capita increased and the ratio of education to military expendiure was also higher.


The Philippines
Like Bangladesh, the people of the Philippines did struggle to get the democratic rights. Now, the Philippines has the Presidential form of government and it is called ‘as a presidential-unitary republic’. The President functions as head of state, the head of government, and the Commander-in-Chief of the armed forces. The President is elected by popular vote for a 6-year term, during which he or she appoints and presides over the cabinet of secretaries. During the late 1960s and early 1970s, there was severe civil unrest in Philippines. Ferdinand Marcos was, then, the elected President. Barred from seeking a third term, Marcos declared martial law in 1972 and ruled the country by decree. Marcos extended both his power and tenure by force. His authoritarian rule became marred with pervasive corruption, despotism. After mass movement the Philippines started to reestablish the democracy from 1986.(The Philippines 2006)

The Philippines is categorized as a developing country with an agricultural base, light industry, and service-sector economy. The Philippines has one of the most vibrant business process outsourcing (BPO) industries in Asia. Numerous call centers and BPO firms have infused momentum into the Philippine market, generating thousands of jobs.  The estimation of the 2005 shows that the total GDP in purchasing power parity of Philippines was $453 billion which is ranked as the 25th position and the per capita GDP was $ 4923 (rank is 102nd).(Economy of The Philippines, 2006) Table 2 shows that the average per capita GDP during the second half of the 1980s ($872.42) and first half of the 1990s ($884.85) were lower that its preceding period ($934.33 and $941.88 for 1976-80 and 1981-85, respectively). But during the second half of the 1990s it grew up ($961.95) and the trend remained upward in 2001-05 ($1053.60) also.

In Philippines, there remains inconsistency for the trend of share of education expenditure but the military expenditure declined over time. Table 2 shows the fluctuation on the average education expenditure, it declined from 2.09% to 1.52% from 1976-80 to 1981-85. But from the first half to second half of 1990s it moved up from 2.30% to 3.15%, again, it declined during 2001-05 (2.83%) While, the share of military expenditure declined over time. During 1986-90 it was 1.43%, it went down to 0.947% in 2001-05. (Table2)
Thus, the share of education expenditure was consistently higher than the military expenditure from 1986-2005. This time period also shows that increment of the per capita income. So, the Philippines also showed a positive trend in the economic growth and higher ratio of expenditure on education to military.

Now, the paper is going to discuss about the one South Asian and on South East Asian country where the internal conflict exists.


Sri Lanka
According to the constitution, the Sri Lanka establishes a democratic, socialist republic in Sri Lanka, as well as a Unitarian state. The government is a mixture of the presidential system and the parliamentary system. The President of Sri Lanka is the head of state, the commander in chief of the armed forces, as well as head of government, and is popularly elected for a six-year term. In the exercise of duties, the President is responsible to the Parliament of Sri Lanka, which is a 225-member legislature. The President appoints and heads a cabinet of ministers composing of elected members of parliament. The President’s deputy is the Prime Minister, who leads the ruling party in parliament and shares many executive responsibilities, mainly in domestic affairs. The politics of Sri Lanka reflect the historical and political differences between the two main ethnic groups, the majority Sinhala and the minority Tamils, who are concentrated in the north and east of the island. The nation has been torn by a bloody civil war between the Sinhalese-dominated government and Tamil separatists led by the Liberation Tigers of Tamil Eelam (LTTE) for demanding an independent Tamil state in northeastern Sri Lanka. (Government and Politics of Sri Lanka (2006)

The economic growth rate of the Sri Lanka is increasing the in recent years. Table 2 demonstrates that over the last three decades the average per capita GDP almost doubled, during 1976-80 it was $418.12, raises to $9.24.84 in 2001-05. The GDP of Sri Lanka is about $80.58 billion (20004). Sri Lanka began to shift away from a socialist orientation in 1977. Since then, the government has been deregulating, privatizing, and opening the economy to international competition.(Economy of Sri Lanka 2006)

There remains no trend on the share of education expenditure but the military expenditure has increased over time. The average share of education expenditure was 2.42% during 1976-80, it declined to 2% during 1981-85, again it raised to 2.67% after a decade (1996-2000), but then declined to 2.55% in 2001-05. (Table 2) The share of the military expenditure of the Sri Lanka increased over time, except for the period 2001-05. The share of military expenditure during 1986-90 was 2.94%, which was increased more than double during 1996-2000 (4.3%).Then it declined to 3.01% in 2001-05. (Table 2)

Hence, table 2 shows that the share of education expenditure was lower than the military expenditure. But at the same time the per capita income increased over time.


Indonesia
Like the Sri Lanka, there is also civil unrest in Indonesia. Indonesia is a republic and a unitary state with a presidential system and power concentrated with the national government. The President of Indonesia is directly elected for a term of five years, and he or she is the head of state, Commander-in-Chief of the Indonesian armed forces, and responsible for domestic governance, policy-making and foreign affairs. The President appoints council of ministers, and it is not required for the minister to be an elected member of the legislature. (Indonesia 2006 There is political turmoil in Indonesia. The terrorism is the critical challenge that Indonesian government. The most deadly attack came in 2002, killing 202 people, including 164 international tourists, in the resort town of Kuta, Bali, which is a warning for the important tourist industry and the economy’s foreign investment prospects of Indonesia.(Indonesia 2006)

According to the purchasing power parity, the GDP of the Indonesia was $977.4 billion (2005 estimation) Indonesia has a market-based economy in which the government plays a significant role. It owns more than 164 state-owned enterprises and administers prices on several basic goods, including fuel, rice, and electricity. (Indonesia, 2006) The trend shows that the GDP per capita increased consistently and during the 1990s the average per capita GDP increased a significantly. It rose from $354.04 to $876.48 during 1976-80 to 2001-05. (Table 2)

The share of education expenditure in Indonesia increases over the last decade but the share of the military expenditure declined over time. During the 1986-90 and 1991-95 the share of education expenditure was 0.67% and 0.58% respectively and in the next decade it rose to 1.08% and 1.13% during 1996-2000 and 2001-05, respectively. The average share of the military expenditure was 1.85% during 1986-90, and went down to 1.03% in 2001-05.(Table 2)

For the period of 1986-2000, the share of the education expenditure was lower than that of military expenditure. During 1986-90 the average share of military expenditure was almost three times higher than education expenditure, but the share of the education expenditure exceeded during 2001-05. It is also noticeable that the per capita GDP increased during this time. Hence, table 2 shows that no particular trend is shown in Indonesia about the ratio between the education and military expenditure but the per capita income increased over time.


VI. Comparison Based on Criteria A: Presence and Absence of Democracy, B: Transition from Autocracy to Democratic Rule and C: Existence of Internal Conflict
In the earlier section, the economic performance and the ratio of education and military expenditure of the different countries have been discussed. This section will present a comparison between the ratio of education and military expenditure regarding economic growth of the South, South East and East Asian countries based on the criteria A,B and C mentioned in the previous section.


Comparison: Criteria A- Presence and Absence of Democracy
This part will compare the relationship between the economic growth and the expenditure on education and military for the countries with and without democracy. Due to unavailability of data of North Korea, this section will discuss on the India, Pakistan and South Korea.

Let us first discuss with the intra regional country (India and Pakistan). India and Pakistan inherited the same historical background and these two countries were divided after 1947, when they achieved freedom from the British. Table2 shows that the average per capita GDP over time for Pakistan is higher than India. But the trend of the increment of the average GDP per capita of India is higher than Pakistan. Table 2 also demonstrates that the proportion of per capita expenditure on education for India is also higher, on the contrary, this proportion is fairly opposite for Pakistan.  It is should be remembered that the population of India (108,264,400 estimation 2005) is more than 6 times higher than the population of Pakistan (162,419,950 estimation 2005) (India 2006, Pakistan 2006) In spite of having higher population, the per capita income of the India is consistently increasing overtime, this trend is also upward for Pakistan, but compare to the thirty years past, the per capita income augmented by 2.34 times whereas, for Pakistan it was 1.8 times. Thus, here it is visible that the country with higher ratio of expenditure on education to military (India) has achieved higher rate of economic growth than that of lower ratio.

Then, let us focus on the intra regional comparison (South Asian and East Asian countries). The per capita income of South Korea is higher vis-à-vis India and Pakistan. Moreover, over the last three decades it increases more than three times. South Korea also raised their proportion of education expenditure to military expenditure.

Thus, it has been seen that for the intra regional and inter regional countries comparison the rate of the income growth was higher for those countries where the ratio of education expenditure is also higher than the military expenditure.


Comparison: Criterion B- Transition from Autocracy to Democratic Rule
The part focuses on those countries which experienced the military or autocratic rule and transformed into democracy. Here, from the South and East Asia Bangladesh and Philippines were selected, respectively.

The per capita income of the Philippines ($1053.60 in 2001-05) is higher than that of Bangladesh ($387.62 in 2001-05). It is also shown that the per capita GDP has been increased over time for both countries. (Table 2) The ratio of the education expenditure to military expenditure for both countries increased. But this change of the proportion in the Philippines is much higher than that of Bangladesh. During 1986-90 share of education expenditure was 1.4 times higher than military expenditure, vis-à-vis, it was it was slightly lower (0.99 times) in Bangladesh. But during 2001-05, this proportion increased for both countries, but in the Philippines this increment was almost 3 times higher, whereas, in Bangladesh this was 1.4 times higher.

During 2001-05 the average per capita income in the Philippines was three times higher than Bangladesh, and, during these periods the proportion of education to military expenditure in Philippines was also higher than Bangladesh. Thus, it seems that the country with higher ratio of expenditure on education to military (the Philippines) also have higher GDP per capita than that of lower ratio (Bangladesh).


Comparison: Criterion C- Existence of Internal Conflict
The part focuses in those countries which have the problem of internal ethnic conflict or civil war. Here, from the South and East Asia Sri Lanka and Indonesia were selected, respectively.

For last few decades the per capita GDP of Sri Lanka was higher than Indonesia. The per capita income consistently increased for both countries.

There remains no consistency in the proportion of education to military expenditure for both countries. During the 1990s the ratio of the average education to military expenditure was lower for both countries. In the period between 1986-90, the average share of education to military expenditure was about 3 times lower in Indonesia, where as, in Sri Lanka it was higher by 1.2 times. But during 2001-05, the average education expenditure exceeded in Indonesia but in Sri Lanka it was lower. (Table 2)

Thus, for Sri Lanka and Indonesia, no particular relationship is apparent between the increment of per capita income and the proportion of education to military expenditure.


VII. Conclusion and Limitations
This paper is not a rigorous study to explore the determinants of economic growth.  This paper mainly discuses the relationship between the economic growth with the proportion of education to military expenditure focusing on the South, East and South East Asian countries, selected by certain criteria.

It seems from the study that for criteria A (presence and absence of democracy) and criterion B (transformation from autocracy to democracy), the countries with higher ratio of education to military expenditure also achieved higher per capita income. But for criterion C (existence of Internal conflicts), no particular relationship can be established. Thus, it is possible that in case of existence of internal conflicts, military expenditure may help to secure the investment climate and so the GDP per capita grew up. Otherwise, the higher expenditure on education than the military expenditure seems to play a positive role to increment the per capita GDP.

The most theoretical and empirical studies asserted a positive relationship between educational expenditure and economic growth, but it was dubious for the military expenditure. (Discussed in section III,IV) . Based on the experience of some South, East, and South East Asian countries this paper also show this same sort of result.
Appendix
1The India and Pakistan achieved their independence on 1947 from the British rulers who ruled the Indian subcontinent during 1757-1947. Korea was liberated from the Japanese by the Allied victory that ended World War II in 1945. World War II ended with the Japanese surrender to the Allies, Manila was the second most destroyed city of World War II. (Microsoft Encarta 2006)

2
During 1975,1985,1995 and 2005 the GNI per capita, PPP (current international $) of South Asia were 417, 944 ,1733 and 3142 and East Asia were 309, 969,2592 and 5914, respectively. (World Bank 2006)

3Military dominance is still prominent in Pakistan. Moreover, Bangladesh and the Philippines experienced the military rule during the past decades.

4For example, the hostile relationship between India and Pakistan since their independence 1947.

5Start with a Constant Returns to Scale (CRTS) production function: Y = f (K,L). CRTS implies that by multiplying each input by some factor “z”, output changes by a multiple of that same factor: zY  = f ( zK, zL)In this case, let z = 1/L. That means: Y * 1/L = f (K * 1/L, L * 1/L) or Y/L = f (K/L, 1)define y = Y/L and k = K/L, so that the production function can now be written as y = f (k),where y is output per worker and k is capital per worker. [Y=Output, K=Capital, L= Labor(http://www.econ.iastate.edu/classes/econ302/Alexander/Spring2006/SOLOW/SOLOWGROWTHMODEL.htm, access November 5,2006)

6Relaxing the assumption of the constraint of the diminishing returns to scale for human capital the production function: Y = AKαH1-α .where 0≤ α ≤ 1.  H= Human capital, assumption that number of labor L is multiplied by quality of workers h and substitutes the combination Lh  and Lh only Matters for Y, This specific means that L will not follow the diminishing returns to scale and so H grows due to improvement of the quality or h. Here, the technological progress is assumed to the fixed (A is constant) (Barro & Martin 2004)

7
Education is a vital instrument for economic growth. Some evidences are listed below:

The United States
According to the studies by Desnsion and Solow, one-third of the output growth during 1941- 81 can be attributed to growth in labor and capital ,while the remaining two-thirds must be attributed to education, innovation, economies of scale an scientific advances. (Schultz 1988)

Japan
According to a the study of the World Bank, Japanese wealth consists of one per cent natural capital, 14 per cent physical capital and 85 per cent human and social capital.

East Asia
According to the World Bank studies 60 to 90 percent of the growth of the East Asia can be explained by the primary education.

Brazil
One-quarter of Brazil’s rapid economic growth in 1970s could be attributed to an increase in the average education of the workforce; one additional year of education, on average, increased real output by about 20 per cent.

India
A one-year increase in the average number of years of primary schooling of the work force would raise output by 23 per cent.

Pakistan
Per capita GDP in 1985 could have been 25 per cent higher if, in 1960, Pakistan had had Indonesia’s primary enrolment rates. (Bridsall et al 1992)

Bangladesh
World Bank study showed that The average salary of a secondary-school educated woman was about seven times that of a woman with no primary education.

Nepal
Increasing the average education of a farmer by on year expanded agricultural output by 5.2 per cent in the Tirai region, and 5.9 per cent in the Hill region. (Pudasaini 1982)
(as quoted in UNDP 1988)
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Electronic Resource
India (2006). Available. Microsoft Encarcta, 2006
Pakistan (2006). Available. Microsoft Encarcta, 2006
North Korea (2006). Available. Microsoft Encarcta, 2006

Web Reference
Bangladesh (2006). http://en.wikipedia.org/wiki/Bangladesh, accessed November 16, 2006
Economy of Bangladesh (2006) http://en.wikipedia.org/wiki/Economy_of_Bangladesh, accessed November 16, 2006
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Government and Politics of Sri Lanka  (2006) http://en.wikipedia.org/wiki/Sri_Lanka#Government_and_politics, accessed November 16, 2006)
India (2006). http://en.wikipedia.org/wiki/India, accessed November 11, 2006
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Pakistan (2006). http://en.wikipedia.org/wiki/Pakistan, accessed November 14, 2006
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The Philippines (2006). http://en.wikipedia.org/wiki/Philippines, accessed on November 16, 2006)


Author: Institute of Educational Development, BRAC University, Dhaka, Bangladesh. Email: [email protected]

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