This paper investigates an important but neglected issue regarding the economic role of defence spending on employment in Taiwan. The study herein adopts official time series data of yearly defence spending, employment in the private sector, GDP, average monthly salary from 1966 to 2002, and the Autoregressive Distributed Lag (ARDL) approach to the cointegration proposed by Pesaran and Shin (1998) and Pesaran et al. (2001). The main finding of this study is that defence spending is able to benefit the employment situation in the long run, but damages employment in the short run, which is reasonable but different from the finding in Turkey provided by Yildirim and Sezgin (2003). In addition, the change in real GDP has a positive and significant influence on employment in both the short run and long run
