“CROWDING OUT” EFFECTS OF DEFENSE EXPENSES FOR THE REPUBLIC OF CROATIA (1994-2004)

The purpose of this paper is to explore the interdependence between defense expenses and investments in the Republic of Croatia. More precisely, a special care has been attended to the issue whether money spent for defense institutions, military equipment, procurement and weapons is preventing the investments and consequently the economic growth in Croatia. There is a signifi cant body of literature on this subject, to which this paper pretends to make the contribution. The research has been performed by setting up and testing a model which gives answers regarding the impact of defense expenses upon investments, by using a model which shows how the independent variable (defense expenses) infl uences the dependent variable (gross domestic product), through investments being an integral part of GDP. By analyzing on the basis of gathered data for all variables, one could draw a conclusion that there is certain interaction between defense expenses and investments. It is proved that Republic of Croatia’s defense expenses in the period of 1994 – 2004 had negative impact upon domestic investments. That of course means that infl uence of defense expenses is negative regarding gross domestic product. It acts negatively upon investments which are an integral part of GDP, and a final influence could still be positive, depending primarily upon preponderance of factors which are acting negatively or positively upon GDP.