Economic Growth and Demand for Military Expenditure in the Indo-Pacific Asia Region

In this paper, we use new data on military expenditure (milex) compiled by the Stockholm International Peace Research Institute (SIPRI) to investigate the relationship between military spending and economic growth. We focus on selected countries in Indo-Pacific Asia – an economically diverse but increasingly prosperous region with pockets of strategic competition and growing milex. We confirm the robustness of SIPRI’s milex data by corroborating it with defence budget data published by Australia’s Defence Intelligence Organisation (ADIO). We find no conclusive evidence of an arms race in the region. It is the growing economic prosperity that accounts for most of the growth in Indo-Pacific Asia’s milex. But we also find wide variations in the economic burden imposed by milex at the national level and that milex’ high level of aggregation masks important changes in national military capabilities. We argue that such capabilities can increase despite a constant or even declining milex burden and, hence, prejudice the peaceful resolution of international conflicts and, thus, undermine the fragile regional stability. We propose limited disaggregation of milex to highlight national spending on military force structure and preparedness so as to facilitate better understanding of military capability formation.