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2/24/16

EU-US Economy: Why more defense spending in the EU and US could slow technology growth

The “peace dividend” that helped propel the global economy after 1989 is in jeopardy.

After 1989, defense spending declined, freeing up resources. U.S. defense spending fell from around 5.5% of GDP in 1989 to 2.6% of GDP in 2000. The reduction in defense spending was even more marked in both Western Europe and in the Russian Federation.

As a result, scientific and mathematical resources previously employed in the defense-industrial infrastructure were redeployed, helping to accelerate the growth of other parts of the economy, especially technology.

Moreover, the collapse of the Soviet Union allowed the integration of formerly communist economies into the Western trading economy, opening up new markets.

The global labor pool doubled to almost 3 billion workers from around 1.5 billion, reducing production costs and keeping inflation low. The dissolution of Cold War alliances and improved security conditions for trade and commerce provided impetus to globalization of production and capital flows.

Read more: Why more defense spending could slow technology growth - MarketWatch

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