This paper examines the impacts of military expenditures on varies sectors of the Ethiopian economy in general and social programs (education and health expenditures) in particular. Unlike most similar studies, a medium-sized macro econometric model and a specific country data set are used to estimate the impacts of defense expenditures. The simulation results indicate that an increase in military expenditures adversely affect output growth and the current account balance. The result also show that there was a trade-off between military expenditures and social; programs.