Determinants of military expenditure and the role of globalisation in a cross-country analysis

Abstract

Anecdotal evidence offers conflicting views on the impact of globalisation on military expenditure. We contribute to the existing literature by investigating the effect of globalisation on military expenditure in 82 countries for the period, 1989–2012. After introducing economic and strategic variables into the model, we utilise the dynamic panel generalised method of moments system to estimate the relationship in the variables. The empirical findings reveal that globalisation reduces both military burden and real military expenditure. The findings are consistent, irrespective of the globalisation indicator adopted. The policy implications of the results are explained.

Keywords:

• Military expenditure
• globalisation: panel data
• system GMM estimates

Notes

1. The concept of the globalisation adopted in this study refers to global movement towards economic, trade and financial integration of different counties.

2. We however log ‘R’, when it is used to proxy institutional quality.

3. In order to deepen the understanding of regime type, autocracies have been divided into four different categorise which include military regimes, monarchies, one party states and personalist regimes (Bove and Brauner 2014). However, finding the relationship between these regime types and military expenditure is beyond the scope of this paper.

4. Algeria, Argentina, Australia, Austria, Bahrain, Bangladesh, Belgium, Botswana, Brazil, Bulgaria, Burkina Faso, Cambodia, Cameroon, Canada, Chile, China, Colombia, Cyprus, Denmark, Dominican Republic, Ecuador, Egypt, El Salvador, Ethiopia, Fiji, Finland, France, Germany, Ghana, Greece, Guatemala, Hungary, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Jordan, Kenya, Korea, Kuwait, Lesotho, Madagascar, Malawi, Malaysia, Mauritius, Mexico, Morocco, Mozambique, Nepal, Netherlands, New Zealand, Nigeria, Norway, Oman, Pakistan, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Portugal, Romania, Rwanda, Saudi Arabia, Senegal, Singapore, South Africa, Spain, Swaziland, Sweden, Switzerland, Tanzania, Thailand, Tunisia, Turkey, Uganda, United Kingdom, United States, and Uruguay.

5. The complete data-set for the baseline variables-globalisation (trade openness), real GDP, population, polity, regional military expenditure and NATO membership – for the period, 1989–2012 are only available in the selected 82 countries.

6. For the purpose of estimation, we have used the Gretl statistical package.

7. The major concern with the two-step approach is that it is likely to be biased downwards. We use the Windmeijer’s (2005) corrected standard errors, which correct for this deficiency.

8. Note that our measures of globalisation enter the regressions with their contemporaneous values. Lagging these variables by one year does not qualitatively change the results.

9. The results are not reported here, but available upon enquiry.

10. We have excluded the polity and NATO as their inclusions are not compatible with our PMG regressions.

11. We have also used real military expenditures as the dependent variable and the results are not materially different from the foregoing findings. The results are not reported here, but available upon enquiry.