The Determination of the Optimal Level of Defense Sector in Iran from Economic Perspective

Defense expenditure is identified as a major part of total public expenditure in Iran. Therefore, determining the optimal level of defense expenditure plays an important role in the efficient allocation of financial resources in the public sectors which could lead to the national economic growth. For this purpose, this study was an attempt to investigate the non-linear effect of defense expenditure on economic growth and is also aimed to determine the optimal level of defense sector in Iran between the years of 1959 and 2012. To address this issue, the study was conducted through running a logistic smooth transition regression model (LSTR). The findings of this model revealed that defense expenditure are non-linearly affecting the economic growth. Moreover, the place of defense expenditure in gross domestic production was emerged in terms of two main components including infrastructures which effectively affecting the average income per capita with the optimal level of 21%. Additionally, in terms of defense expenditure place in GDP, the first factor has received the positive effect while the second factor has suffered the negative effect. Finally, the hypothesis of an inverse U-shaped effect of defense expenditure on economic growth was confirmed in this study.