Military investment lifts GDP after four years with 1.3 multiplier
Defence procurement contracts boost GDP only after a lag of roughly four years, reaching a peak total multiplier of 1.3, according to a Banco de España study. The output effect remains transitory and requires domestic contractors to generate meaningful macroeconomic expansion.
Four years from contract to factory output
Analyzing 30 years of Spanish procurement data from 1991 to 2023, the authors track how military commitments translate into economic activity.
National accounts register military hardware only upon delivery, obscuring the ramp-up phase and lagging procurement awards by four to five years.
Empirical local projections indicate that output barely responds during the first two and a half years after a contract award.
Economic activity then accelerates, with GDP peaking at approximately 3 percent in the fourth year for investment-related contracts, before declining steadily.
Total fiscal multipliers reflect this timeline: they remain near zero during the first two years, reach a peak of 1.31 in the fifth year, and stabilize at 0.86 by year seven.
The transatlantic delivery gap
A calibrated two-country DSGE model demonstrates that administrative and production delays govern the growth trajectory.
Adopting United States implementation timelines would advance peak economic expansion by roughly 18 months.
Crucially, the model shows that defence hardware cannot be treated like public infrastructure.
While civil capital permanently enhances productivity, weapons systems offer only temporary spillovers during manufacture.
Furthermore, cross-border analysis shows that multipliers collapse toward zero when contracts are awarded to foreign firms.
No shortcut to rearmament dividends
European capitals pitching defence buildups as swift economic stimulus are misreading procurement realities.
With production lags delaying GDP gains by four years, military outlays cannot function as countercyclical stimulus.
Sustainable economic returns also hinge on domestic contractors rather than foreign purchases.