Determinants of Defense Spending: The Role of Strategic Factors in France

ABSTRACT

This paper examines the main determinants of French defense spending over the period 1958–2017. To estimate the determinants of defense spending, the demand defense literature considers both economic and strategic factors such as conflicts, threats, and alliances. Our approach is original because we focus on strategic factors, including proxies for an alliance’s membership and external threats. In addition, we include transnational terrorism as a proxy for internal threats. We find that defense spending is positively related to the gross domestic product, North Atlantic Treaty Organization membership, military operations abroad, and external threats and negatively linked to the population as a proxy to public service needs. These results are robust to changes in specifications and shifts in defense policy observed after 1991. This contribution underlines that the fundamental determinants of defense policy in France are economic conditions.

KEYWORDS:

• Defense spending
• demand function
• security
• cointegration
• france

JEL CLASSIFICATION:

• C32
• E62
• H56
• O40

Acknowledgments

For this version, we consider comments from participants in the French Economic Association (AFSE) conference in Lyon (2014) as well as the two reviewers. All remaining errors are ours.

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1. https://www.vie-publique.fr/discours/193098-declaration-de-m-jean-yves-le-drian-ministre-de-la-defense-sur-les

2. In the case of France, its neighbors are allies and peaceful countries; thus, we cannot check for any contagion effect (Carmignani and Kler 2018).

3. Land forces represent a large portion of Operation Sentinelle, but the air force and the navy are also under pressure to change their formats to contribute to internal activities.

4. We have reported only the results obtained by using the FMOLS estimates because the CCR and DOLS estimates are equivalent.