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The Effects of the Security Environment on Military Expenditures: Pooled Analyses of 165 Countries, 1950-2000

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Countries' military expenditures differ greatly across both space and time. This study examines the determinants of military spending, with particular reference to the importance of the external security environment. Using the liberal-realist model of international relations, we first estimate the probability that two countries will be involved in a fatal militarized interstate dispute. We then aggregate these ex ante estimates of the likelihood of dyadic conflict, calculating the annual joint probability that a country will be involved in a fatal dispute. This is our measure of the external threat. We then estimate the level of military spending by country and year as a function of the security environment, arms races with foes and the defense expenditures of friendly countries, states' involvement in actual military conflict, economic output, and various other political variables. In analyses of a panel of 165 countries, 1950 to 2000, we find that the security environment is a powerful determinant of military spending. Indeed, our prospectively measured estimate of the external threat is more influential than any of several influences known only ex post. Our best estimate is that a one percentage point rise in the probability of a fatal dispute leads to a 3 percent increase in military spending.

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Paper provided by Cowles Foundation for Research in Economics, Yale University in its series Cowles Foundation Discussion Papers with number 1707.

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Length: 34 pages
Date of creation: Jun 2009
Date of revision: Oct 2009
Handle: RePEc:cwl:cwldpp:1707

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Keywords: Military spending; Security threat; Arms race; Militarized disputes; Democracy; Alliances;

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  1. Jennifer Gandhi & Adam Przeworski, 2006. "Cooperation, Cooptation, And Rebellion Under Dictatorships," Economics and Politics, Wiley Blackwell, vol. 18(1), pages 1-26, 03.
  2. Dunne, J. Paul & Smith, Ron P., 2007. "The Econometrics of Military Arms Races," Handbook of Defense Economics, Elsevier.
  3. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287.
  4. Murdoch, James C. & Sandler, Todd, 1984. "Complementarity, free riding, and the military expenditures of NATO allies," Journal of Public Economics, Elsevier, vol. 25(1-2), pages 83-101, November.
  5. Beck, Nathaniel & Katz, Jonathan & Tucker, Richard, 1997. "Beyond Ordinary Logit: Taking Time Seriously in Binary Time-Series-Cross-Section Models," Working Papers 1017, California Institute of Technology, Division of the Humanities and Social Sciences.
  6. John R. Oneal & Bruce Russett, 2005. "Rule of Three, Let It Be? When More Really Is Better," Conflict Management and Peace Science, Peace Science Society (International), vol. 22(4), pages 293-310, September.
  7. Brito, Dagobert L. & Intriligator, Michael D., 1995. "Arms races and proliferation," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 1, chapter 6, pages 109-164 Elsevier.
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