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Determining Military Expenditures: Arms Races and Spill-Over Effects in Cross-Section and Panel Data

Author

Listed:
  • J Paul Dunne

    (Department of Economics, British University in Egypt and UWE, Bristol)

  • Sam Perlo-Freeman

    (Stockholm International Peace Research Institute (SIPRI))

  • Ron P Smith

    (Department of Economics, Birkbeck College, London)

Abstract

This paper considers the determinants of military spending, building on an emerging literature that estimates military expenditure demand functions in cross-section and panel data, incorporating ‘arms-race’ type effects. It updates Dunne and Perlo-Freeman (2003b) using the SIPRI military expenditure database for the period 1988-2003, finding broadly similar results. It also shows differences in results across panel methods, particularly the within and between estimates and illustrates the importance of recognising and modelling dynamic processes within panel data. Heterogeneity is also found to be an important issue and when countries are broken up into groups on the basis of per capita income there is no obvious systematic pattern in the results. This is seen to imply that the demand for military spending, even between two mutually hostile powers, may depend on the whole nature of the relationship between them (and other countries and events in the region), and not simply Richardsonian action-reaction patterns.

Suggested Citation

  • J Paul Dunne & Sam Perlo-Freeman & Ron P Smith, 2009. "Determining Military Expenditures: Arms Races and Spill-Over Effects in Cross-Section and Panel Data," Working Papers 0901, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
    • Handle: RePEc:uwe:wpaper:0901
    as

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    File URL: http://carecon.org.uk/DPs/0901.pdf
    File Function: First version, 2009
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    References listed on IDEAS

    as
    1. Yasmine M. Abdelfattah & Aamer S. Abu-Qarn & J. Paul Dunne & Shadwa Zaher, 2014. "The Demand for Military Spending in Egypt," Defence and Peace Economics, Taylor & Francis Journals, vol. 25(3), pages 231-245, June.
    2. James C. Murdoch & Todd Sandler, 2004. "Civil Wars and Economic Growth: Spatial Dispersion," American Journal of Political Science, John Wiley & Sons, vol. 48(1), pages 138-151, January.
    3. Paul Dunne & Sam Perlo-Freeman, 2003. "The Demand for Military Spending in Developing Countries," International Review of Applied Economics, Taylor & Francis Journals, vol. 17(1), pages 23-48.
    4. Paul Collier & Anke Hoeffler, 2007. "Unintended Consequences: Does Aid Promote Arms Races?," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 69(1), pages 1-27, February.
    5. Ron Smith & Martin Sola & Fabio Spagnolo, 2000. "The Prisoner's Dilemma and Regime-Switching in the Greek-Turkish Arms Race," Journal of Peace Research, Peace Research Institute Oslo, vol. 37(6), pages 737-750, November.
    6. James C. Murdoch & Todd Sandler, 2002. "Economic Growth, Civil Wars, and Spatial Spillovers," Journal of Conflict Resolution, Peace Science Society (International), vol. 46(1), pages 91-110, February.
    7. Dunne, J. Paul & Smith, Ron P., 2007. "The Econometrics of Military Arms Races," Handbook of Defense Economics, in: Keith Hartley & Todd Sandler (ed.), Handbook of Defense Economics, edition 1, volume 2, chapter 28, pages 913-940, Elsevier.
    8. Solomon Polachek & Carlos Seiglie & Jun Xiang, 2005. "Globalization and International Conflict: Can FDI Increase Peace?," Working Papers Rutgers University, Newark 2005-004, Department of Economics, Rutgers University, Newark.
    9. J. Paul Dunne & Sam Perlo-Freeman, 2003. "The demand for military spending in developing countries: A dynamic panel analysis," Defence and Peace Economics, Taylor & Francis Journals, vol. 14(6), pages 461-474.
    Full references (including those not matched with items on IDEAS)

    Citations

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    Cited by:

    1. Töngür, Ünal & Hsu, Sara & Elveren, Adem Yavuz, 2015. "Military expenditures and political regimes: Evidence from global data, 1963–2000," Economic Modelling, Elsevier, vol. 44(C), pages 68-79.
    2. Johannes Blum, 2021. "Democracy’s third wave and national defense spending," Public Choice, Springer, vol. 189(1), pages 183-212, October.
    3. Bove, Vincenzo & Efthyvoulou, Georgios & Navas, Antonio, 2017. "Political cycles in public expenditure: butter vs guns," Journal of Comparative Economics, Elsevier, vol. 45(3), pages 582-604.
    4. Johannes Blum, 2020. "Democracy’s Third Wave and National Defense Spending," ifo Working Paper Series 339, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    5. Unal Tongur & Sara Hsu & Adem Yavuz Elveren, 2013. "Military Expenditures and Political Regimes: An Analysis Using Global Data, 1963-2001," ERC Working Papers 1307, ERC - Economic Research Center, Middle East Technical University, revised Jul 2013.
    6. Vincenzo Bove & Jennifer Brauner, 2016. "The demand for military expenditure in authoritarian regimes," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(5), pages 609-625, September.

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    More about this item

    Keywords

    Military Spending; Demand; Arms races; Spillovers; Panel data;
    All these keywords.

    JEL classification:

    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • C3 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables

    Statistics

    Access and download statistics

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