If a missile defense option is judged to be both strategically desirable and technically feasible, a decision to deploy the system must depend on economic feasibility. This essay is designed to examine the impact of military spending on Taiwan’s economic development with a focus on implications for theater missile defense (TMD). With respect to the political economy of military expenditure, we find that an examination of the Taiwan case offers results different from cross-national research in the West. Taiwan has combined a heavy military burden with fast and sustained economic growth, a very competitive export sector; and high levels of capital formation while maintaining relative political stability and income equality. All these suggest that Taiwan can apparently afford what is required. This is not the case, however. Especially when threats emerge and become more obvious, cost factors recede in significance. However, the decisions to be made over TMD will not only be based on economic considerations but also reflect the political and social preferences of the people on Taiwan.