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

  • 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)

Registered author(s):

    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.

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    File Function: First version, 2009
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    Paper provided by Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol in its series Working Papers with number 0901.

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    Length: 24 pages
    Date of creation: Jan 2009
    Date of revision:
    Handle: RePEc:uwe:wpaper:0901
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    1. Dunne, J. Paul & Smith, Ron P., 2007. "The Econometrics of Military Arms Races," Handbook of Defense Economics, Elsevier.
    2. 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.
    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. 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.
    5. 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.
    6. 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, 02.
    7. Aamer S. Abu-Qarn & J Paul Dunne & Yasmine M. Abdelfattah & Shadwa Zaher, 2010. "The Demand for Military Spending in Egypt," Working Papers 1001, Department of Accounting, Economics and Finance, Bristol Business School, University of the West of England, Bristol.
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