Defense Burden and the Effect of Others: From Neighbors to Allies

ABSTRACT

This paper presents new evidence on the effects of neighbors and allies on defense burdens using a spatial econometrics model with panel data on 36 countries in Europe collected over 19 years. Apart from the conventional spatial matrices of geographical neighbors, we develop special political vicinity matrices based on arms transfers, which reveal political closeness among countries, and solve the problems associated with endogenous weight matrices by using a QMLE approach. The regression results demonstrate that the defense burden is positively and spatially correlated among geographical neighbors. The use of political vicinity matrices reveals a negative effect of allied relations on defense burdens, which supports the free-riding theory in alliances for setting a defense budget. With composite matrices, the intimidation effect induced by geographical approaches is dominated by the free-riding actions of allies, and the effect becomes more pronounced over time.

KEYWORDS:

• Defense burden
• spatial model
• political vicinity
• endogenous weight matrix

JEL CLASSIFICATION:

• H41
• D74

Acknowledgments

The authors gratefully acknowledge extremely helpful comments from two anonymous reviewers and Karl Skogstad on an earlier draft. This work was supported by Strategic Economy Interdisciplinarity of Beijing Universities Advanced Disciplines Initiative under Grant No. GJJ2019163.

Disclosure Statement

No potential conflict of interest was reported by the authors.

Notes

1. SIPRI statistical data on arms transfers relates to deliveries of major conventional weapons. To permit comparisons between the data on the deliveries of different weapons and to identify general trends, SIPRI has developed a unique system to measure the volume of international transfers of major conventional weapons using a common unit – the trend-indicator value (TIV).

2. The sample countries are Albania, Austria, Belarus, Belgium, Bulgaria, Croatia, Cyprus, the Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Macedonia, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Romania, Russia, Slovakia, Slovenia, Spain, Sweden, Switzerland, Ukraine, and the United Kingdom.

Additional information

Funding

This work was supported by the Strategic Economy Interdisciplinarity of Beijing Universities Advanced Disciplines Initiative [GJJ2019163].