Unemployment Effects of Military Spending: Evidence from a Panel of States
We use data on a panel of states over a 30 year sample to estimate the response of unemployment to military procurement spending. The state panel provides greater variation in both variables and permits us to examine whether responses to procurement spending shocks vary across states. Our main finding is that changes in procurement spending significantly affect unemployment in states heavily dependent on the military sector and subject to large such changes, and that accounting for this variation in responses across states adds approximately 40% to the estimated aggregate unemployment impact of the current drawdown.
Published: Journal of Money, Credit, and Banking (August 1997): 400-421.