What goes up, must come down? The asymmetric effects of economic growth and international threat on military spending

Abstract

Do considerations that cause military spending increases symmetrically cause spending cuts? Models of military spending that estimate a single effect for major independent variables implicitly assume that this is the case. In reality, the mechanisms that cause military spending increases do not always imply symmetrical cuts, and vice versa. This article examines two considerations widely held to influence military spending: economic growth and international threats. In both cases, there are reasons to suspect asymmetric effects on military spending. While recessions always create pressure for cuts in military spending, which frequently constitutes a substantial share of national budgets, economic growth does not necessarily imply a symmetric need for spending increases. Similarly, while national security policymakers, including the military, are likely to call for spending increases when international threats worsen, they have self-interested reasons to minimize the budgetary implications of declining threats. A cross-national analysis of military spending since World War II shows that economic decline has a larger impact on military spending than economic growth. In regards to international threat, the findings are more complex. There is no evidence that international threat is related to changes in military spending in the short run, and little evidence of a long-run relationship. The threat variables appear to account for cross-sectional variation in military spending but not variation within each state over time. These results suggest military budgets require more time to recover from economic decline than benefit from economic growth as recessions can thus produce long deviations from the equilibrium relationship between the size of the economy and the military budget. This finding in military spending suggests consequences for our understanding of balance of power and power transitions.

The Economic Costs of Hybrid Wars: The Case of Ukraine

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The Economic Effects of International Sanctions: An Event Study

“…7 Figure 2 provides separate plots for democracies (as indicated by a polity2 score above 5) and non-democracies, because we expect differences in how these governments reallocate their expenditures under sanctions. In general, one might expect that governments facing international sanctions reallocate resources from civilian spending categories to military spending (Cappella-Zielinski et al 2017;Nordhaus et al 2012). The limited empirical evidence regarding that question, however, indicates that, at least in Iran, military expenditures declined due to international sanctions (Dizaji and Farzanegan 2021;Farzanegan 2019).…”

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