IDEAS home Printed from https://ideas.repec.org/a/bpj/statpp/v17y2026i1p19-42n1001.html

Defense Spending Under Pressure: An ARDL Study of Indonesia’s Economic and Strategic Realities

Author

Listed:
  • Bachtiar Muchamad

    (Student in Defense Economics and Lecture in School of Business of IPB University, Bogor Agricultural University, Bogor, 16680, Indonesia)

  • Irwanto Bambang

    (Indonesia Defense University, Bogor, 16810, Indonesia)

  • Ahmad Irdam

    (Indonesia Defense University, Bogor, 16810, Indonesia)

  • Sahabuddin Zainal Abidin

    (Indonesia Defense University, Bogor, 16810, Indonesia)

  • Trismadi Trismadi

    (Indonesia Defense University, Bogor, 16810, Indonesia)

Abstract

This study examines the economic and geopolitical determinants of Indonesia’s defense expenditure from 1984 to 2022 using the Autoregressive Distributed Lag (ARDL) model to capture both short-term and long-term dynamics. Recognizing the contextual relevance of Indonesia’s Total People’s Defense and Security System (SISHANKAMRATA), the analysis relies on conventional military expenditure data (% of GDP) due to the absence of consolidated multi-ministerial records. The results show that in the short run, defense spending is highly sensitive to macroeconomic shocks: inflation, exchange rate volatility, and foreign direct investment exert negative effects, while debt, trade openness, and regional military expenditure strengthen budgetary allocations. In the long run, macroeconomic fundamentals (debt, growth, inflation, and foreign investment) together with neighboring countries’ military spending drive defense expenditure, whereas regional average spending has a negative effect and U.S. military expenditure does not show a structural impact. These findings underscore the dual pressures of fiscal fragility and regional security competition in shaping Indonesia’s defense budget. Policy implications highlight the importance of inflation-adjusted and exchange rate–resilient budgeting, sustainable financing mechanisms such as defense bonds or a Defense Sovereign Wealth Fund (D-SWF), and deeper ASEAN defense cooperation to balance security needs with fiscal discipline. This study contributes a macro-level perspective on defense economics under conditions of institutional fragmentation, offering a framework for future comparative and panel-based research across decentralized security systems.

Suggested Citation

  • Bachtiar Muchamad & Irwanto Bambang & Ahmad Irdam & Sahabuddin Zainal Abidin & Trismadi Trismadi, 2026. "Defense Spending Under Pressure: An ARDL Study of Indonesia’s Economic and Strategic Realities," Statistics, Politics and Policy, De Gruyter, vol. 17(1), pages 19-42.
    • Handle: RePEc:bpj:statpp:v:17:y:2026:i:1:p:19-42:n:1001
    DOI: 10.1515/spp-2025-0013
    as

    Download full text from publisher

    File URL: https://doi.org/10.1515/spp-2025-0013
    Download Restriction: For access to full text, subscription to the journal or payment for the individual article is required.
    File URL: https://libkey.io/10.1515/spp-2025-0013?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to

    for a different version of it.

    References listed on IDEAS

    as
    1. M Ensar Yesilyurt & J Paul Elhorst, 2017. "Impacts of neighboring countries on military expenditures," Journal of Peace Research, Peace Research Institute Oslo, vol. 54(6), pages 777-790, November.
    2. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    3. Hashem Pesaran, M. & Smith, Ron P., 2016. "Counterfactual analysis in macroeconometrics: An empirical investigation into the effects of quantitative easing," Research in Economics, Elsevier, vol. 70(2), pages 262-280.
    4. Edward Hunter Christie, 2019. "The Demand for Military Expenditure in Europe: The Role of Fiscal Space in the Context of a Resurgent Russia," Defence and Peace Economics, Taylor & Francis Journals, vol. 30(1), pages 72-84, January.
    5. Muhammad Azam & Yi Feng, 2017. "Does military expenditure increase external debt? Evidence from Asia," Defence and Peace Economics, Taylor & Francis Journals, vol. 28(5), pages 550-567, September.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Wagschal Uwe & Reinbold Judith & Schleehauf Ronald, 2026. "Editors’ Note," Statistics, Politics and Policy, De Gruyter, vol. 17(1), pages 1-3.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Minhaj ud-Din & Muhammad Azam Khan & Muhammad Tariq, 2020. "External Debt - Blessing or Curse: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 235-246.
    2. Kiryl Rudy, 2022. "Military Economy and Economic Growth: Bidirectional Effects in Transition Economies of Eurasia," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 14(3), pages 285-300, September.
    3. Keshmeer Makun, 2025. "An Asymmetric Analysis of Public Debt and Defence Expenditure in Fiji," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(2), pages 9161-9176, June.
    4. Justin George & Todd Sandler, 2021. "EU Demand for Defense, 1990–2019: A Strategic Spatial Approach," Games, MDPI, vol. 12(1), pages 1-18, February.
    5. Ping Hu & Lotifa Tamanna Toma & Yi-Xiang Bai & Vikas Khare & Miraj Ahmed Bhuiyan, 2025. "Appraisal of Eco-friendly Innovation Pathways to Carbon Neutrality for Developed and Developing Nations," Journal of the Knowledge Economy, Springer;Portland International Center for Management of Engineering and Technology (PICMET), vol. 16(3), pages 13061-13079, September.
    6. Abdul Rehman & Hengyun Ma & Rafael Alvarado & Fayyaz Ahmad, 2023. "The nexus of military, final consumption expenditures, total reserves, and economic development of Pakistan," Economic Change and Restructuring, Springer, vol. 56(3), pages 1753-1776, June.
    7. Wukki Kim & Todd Sandler & Hirofumi Shimizu, 2024. "An expanded investigation of alliance security free riding," Global Policy, London School of Economics and Political Science, vol. 15(4), pages 570-582, September.
    8. Justin George & Todd Sandler, 2024. "A spatial analysis of NATO burden sharing at the operational levels," Kyklos, Wiley Blackwell, vol. 77(4), pages 1026-1047, November.
    9. Karasoy, Alper, 2022. "Is innovative technology a solution to Japan's long-run energy insecurity? Dynamic evidence from the linear and nonlinear methods," Technology in Society, Elsevier, vol. 70(C).
    10. Bruce Morley, 2009. "A Comparison of Two Alternative Monetary Approaches to Exchange Rate Determination over the Long-Run," International Econometric Review (IER), Economic Research Association, vol. 1(2), pages 63-76, September.
    11. Villanthenkodath, Muhammed Ashiq & Mahalik, Mantu Kumar, 2021. "Does economic growth respond to electricity consumption asymmetrically in Bangladesh? The implication for environmental sustainability," Energy, Elsevier, vol. 233(C).
    12. Bloch, Harry & Rafiq, Shuddhasattwa & Salim, Ruhul, 2015. "Economic growth with coal, oil and renewable energy consumption in China: Prospects for fuel substitution," Economic Modelling, Elsevier, vol. 44(C), pages 104-115.
    13. Shahbaz, Muhammad & Hoang, Thi Hong Van & Mahalik, Mantu Kumar & Roubaud, David, 2017. "Energy consumption, financial development and economic growth in India: New evidence from a nonlinear and asymmetric analysis," Energy Economics, Elsevier, vol. 63(C), pages 199-212.
    14. Noraida, A.W. & Abdul-Rahim, A.S. & Othman, Mohd, 2017. "The Impact of Sustainable Forest Management (SFM) Practices on Primary Timber-Based Production in Peninsular Malaysia," Jurnal Ekonomi Malaysia, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, vol. 51(2), pages 143-154.
    15. Georgios Bertsatos & Plutarchos Sakellaris & Mike G. Tsionas, 2022. "Correction to: Extensions of the Pesaran, Shin and Smith (2001) bounds testing procedure," Empirical Economics, Springer, vol. 62(2), pages 635-635, February.
    16. Md.Yousuf & Raju Ahmed & Nasrin Akther Lubna & Shah Md. Sumon, 2019. "Estimating the Services Sector Impact on Economic Growth of Bangladesh: An Econometric Investigation," Asian Journal of Economic Modelling, Asian Economic and Social Society, vol. 7(2), pages 62-72, June.
    17. Nisamudheen, P.P. & Shareef, K. Hassan, 2025. "The role of human capital in driving renewable energy and sustainable development in India," Utilities Policy, Elsevier, vol. 95(C).
    18. Nasreen, Samia & Anwar, Sofia & Ozturk, Ilhan, 2017. "Financial stability, energy consumption and environmental quality: Evidence from South Asian economies," Renewable and Sustainable Energy Reviews, Elsevier, vol. 67(C), pages 1105-1122.
    19. Muhammad Shafiullah & Ravinthirakumaran Navaratnam, 2016. "Do Bangladesh and Sri Lanka Enjoy Export-Led Growth? A Comparison of Two Small South Asian Economies," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 17(1), pages 114-132, March.
    20. Md. Saiful Islam, 2025. "Linking green innovation to environmental quality in Saudi Arabia: an application of the NARDL approach," Environment, Development and Sustainability: A Multidisciplinary Approach to the Theory and Practice of Sustainable Development, Springer, vol. 27(8), pages 19741-19762, August.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bpj:statpp:v:17:y:2026:i:1:p:19-42:n:1001. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Peter Golla (email available below). General contact details of provider: https://www.degruyterbrill.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.