Sino-U.S. Relations and the Demand for Military Expenditure in the Indo-Pacific Region

ABSTRACT

This paper examines the demand for military expenditure in eighteen selected Indo-Pacific countries for the years 1993–2018. As the dominant powers, the U.S. and China characterize the geopolitical structure of the Indo-Pacific region. Sino-U.S. relations are newly quantified by measuring the number of cooperative and conflict events between China and the United States based on the Global Database of Events, Language, and Tone (GDELT). After incorporating Sino-U.S. relation variables into neoclassical demand models, the panel data estimating results reveal that the increasing number of confrontations from the United States toward China has lead to increases in non-U.S. allies’ military expenditure while the rise in China confronting the United States has not. U.S. allies in the Indo-Pacific region have tended to increase military expenditure when the United States increases its pressure on China. The empirical results provide evidence that Sino-U.S. relations affect the level of military expenditure in the Indo-Pacific Region.

KEYWORDS:

• Military expenditure
• indo-pacific region
• gdelt
• conflict-to-cooperation ratio
• us allies

Acknowledgments

The authors are most grateful for the valuable comments of the anonymous referee. Remaining errors are ours.

Disclosure statement

No potential conflict of interest was reported by the authors.

Notes

1. Due to the availability of data, the eighteen selected Indo-Pacific countries are Australia, Bangladesh, Cambodia, India, Indonesia, Japan, Laos, Malaysia, Nepal, New Zealand, Pakistan, the Philippines, Russia, Singapore, South Korea, Sri Lanka, Thailand, and Vietnam.

2. The empirical results are similar if GDP variables are used instead of GDP per capita.

3. Stockholm International Peace Research Institute, SIPRI Military Expenditure Database, https://www.sipri.org/databases/milex, accessed 1 June 2020.

4. World Bank DataBank, World Development Indicators, https://databank.worldbank.org/reports.aspx?source=world-development-indicators#, accessed 1 June 2020.

5. Polity 5 Project, Political Regime Characteristics and Transitions, 1800–2018, Center for System Peace, http://www.systemicpeace.org/inscrdata.html, accessed 1 June 2020.

6. When the Polity 2 data are used in logarithmic form, the polity variables are scaled up by adding 12 to make positive numbers.

7. Some notable studies on the demand for military expenditures include spatial effects in the estimates (Ensar and Paul Elhorst 2017; George, Hou, and Sandler 2019; George and Sandler 2018). But after calculating the Moran’s I of our military expenditure data, the values of I from 1993 to 2018 are all close to zero, which reveals that spatial autocorrelation is not found among the military expenditures of our sample countries. Thus, spatial estimating methods are not used in our empirical analysis.

8. Year dummies are found to be jointly significant for the results of the eighteen Indo-Pacific countries and eleven Indo-Pacific non-U.S. allies. In order to conserve space, the coefficients of the year dummies are not presented.

9. The U.S. allies in the Indo-Pacific region include Australia, Japan, New Zealand, Pakistan, Philippines, South Korea, and Thailand. The non-U.S. allies in the Indo-Pacific region include Bangladesh, Cambodia. China, India, Indonesia, Laos, Malaysia, Nepal, Russia, Singapore, Sri Lanka, and Vietnam.

10. The estimating method is one-way FEM due to the insignificance of time dummies for the sample of the seven Indo-Pacific U.S. allies.

Additional information

Funding

This work was supported by the Strategic Economy Interdisciplinarity of Beijing Universities Advanced Disciplines Initiative (GJJ2019163) and Social Science Foundation of Beijing (20LLYJC053).