The Demand for Military Spending in Egypt

Abstract

Egypt plays a pivotal role in the security of the Middle East as the doorway to Europe and its military expenditure reflects its involvement in the machinations of such an unstable region, showing considerable variation over the last 40 years. These characteristics make it a particularly interesting case study of the determinants of military spending. This paper specifies and estimates an econometric model of the Egyptian demand for military spending, taking into account important strategic and political factors. Both economic and strategic factors are found to play a role in determining military burden/spending, with clear positive effects of lagged military burden, suggesting some sort of institutional inertia, plus negative output and net exports effects. The strategic effect as a result of the impact of Israel’s military burden is mostly positive and significant, though its impact is reduced when the impact of important strategic events are taken into account. The military spending of Egypt’s allies Jordan and Syria generally seems to have had no effect on Egypt’s spending. These results are consistent over a range of econometric techniques.

Keywords:

• Egypt
• Demand for military expenditure
• Political determinants
• Strategic determinants
• Cointegration

JEL Codes:

• H56
• O53

ACKNOWLEDGEMENTS

We are grateful to Ron Smith and two anonymous referees of this journal for their helpful comments and suggestions.