Better is the Neighbor?

Abstract

This study applies the Sequential Panel Selection Method (SPSM), to investigate the convergence properties of the military expenditure of the North Atlantic Treaty Organization (NATO) during the period of 1990–2015. Compared to the traditional methods, SPSM considers fundamentally general spatial homogeneous and heterogeneous relationships with countries and examines the evolution of military expenditure. We find that four-fifths of NATO member countries have been convergent with the UK, but no country’s military expenditure is convergent with the US. This means that there is no significant linkage effect in the US for NATO military expenditure. While they are allies of the US, the majority of NATO member countries’ military expenditures are consistent with UK military expenditure. The main reasons are due to the geographical space layout and the international relationship convergence. The results indicate that more than four-fifths of NATO member countries have been coordinated with convergence theory and spillover effect.

Keywords:

• Military expenditure
• sequential panel selection method
• convergence
• NATO

JEL classifications:

• F42
• E62
• C33

Acknowledgement

This paper has been supported by Ministry of Education, Humanities and Social Sciences Youth Fund (16YJC790064).

Notes

1. The readers who are interested in the codes could contact with the authors.

2. First year of NATO membership is shown in the bracket.

3. https://www.theguardian.com/world/2016/jun/22/nato-chief-says-uk-staying-in-the-eu-is-key-to-fighting-terrorism

4. Although France and other countries are important countries in the Europe Union, the US’s most intimate partner is Britain in respect to NATO’s dominance, so this article chooses Britain as the target country.