Abstract
For many years, conventional wisdom stressed that developing countries such as Pakistan face a guns versus butter trade-off, with increased defence expenditures coming at the expense of improved economic growth. Later, statistical studies suggested that, depending on the circumstances, defence expenditures could either aid or hinder economic growth. However, these studies were silent on the key role governance structures played in affecting the environments in which defence expenditures occur. Our findings suggest that governance patterns relative to defence determine to a large extent whether increased defence allocations interact with the economy in a positive or negative fashion. Unfortunately for Pakistan, defence expenditures have outrun governance to the extent that their impacts on the economy are negative. Furthermore, this effect is likely to persist even if defence expenditures are significantly reduced. Improved governance is the only option open to the authorities in their attempts to neutralise the adverse impacts of military expenditures.
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