Optimal versus required defence expenditure: The case of the Greek-Turkish arms race

The aim of this paper is to indicate the extent to which the arms race against Turkey, in which Greece and Cyprus have been entangled, imposes a defence expenditure burden that is tough for the two allies to bear. To do so we have resorted to evaluating the optimal military expenditure for the two countries, allied in the context of the Integrated Defence Doctrine, which is compatible with the constraints imposed by the resources of their economies. All experiments and scenarios examined lead to the conclusion that the current defence burden of the two allies seems to be driving their economies beyond capacity limits. The fact remains, however, that under the circumstances, a one-sided disarmament policy like the one currently followed by Greece, is a risky choice given that the long-term armament programmes pursued by Turkey, whose role in this arms race has been proven as leading, leave very small room to the Greek and Cypriot sides to reduce their own defence expenditure.     

The Effects of Defence Spending Reductions: A CGE Estimation of the Foregone Peace Dividend in the Case of Greece

With the collapse of bipolarity and the end of the East-West armaments race, defence budgets have shrunk and military expenditures across many countries have fallen, opening-up the prospect of potential beneficial economic spin-offs. In the case of Greece, a country with a higher than average defence burden, military spending has not exhibited similar downward trends as it has done in other members of NATO and the European Union. The paper, using a Computable General Equilibrium model, estimates through simulations the effects on the Greek economy had reductions in current defence spending been equal to the NATO average. The results from the CGE estimations suggest that a shift of expenditure from defence into non-defence public spending would have an appreciable beneficial impact.     

Better is the Neighbor?

Abstract

This study applies the Sequential Panel Selection Method (SPSM), to investigate the convergence properties of the military expenditure of the North Atlantic Treaty Organization (NATO) during the period of 1990–2015. Compared to the traditional methods, SPSM considers fundamentally general spatial homogeneous and heterogeneous relationships with countries and examines the evolution of military expenditure. We find that four-fifths of NATO member countries have been convergent with the UK, but no country’s military expenditure is convergent with the US. This means that there is no significant linkage effect in the US for NATO military expenditure. While they are allies of the US, the majority of NATO member countries’ military expenditures are consistent with UK military expenditure. The main reasons are due to the geographical space layout and the international relationship convergence. The results indicate that more than four-fifths of NATO member countries have been coordinated with convergence theory and spillover effect.     

Modeling the effects of military tension on foreign trade: Some preliminary empirical findings from the Greek-Turkish rivalry

In this paper we examine the effects of irreversibility on foreign trade in the case where there are two sources of uncertainty. The two sources considered in this paper are uncertainty arising from business risk and uncertainty arising from military tension. The resulting insights are then used to model the import markets of Greece and Turkey. These models are then empirically estimated, in order to ascertain, on the one hand whether there is evidence that irreversibility is indeed a factor on the supply side of these markets, and on the other hand, the direction of the incidence of military tension on foreign trade. An index of military tension is used for the two countries, based on the number of airspace violations by Turkish military aircraft of Greek airspace.     

Defense Burden and the Effect of Democracy: Evidence from a Spatial Panel Analysis

ABSTRACT

Do democracies spend less on national defense? This paper provides new evidence of the effect of democracy on defense burden based on a Spatial Durbin Model with panel data for 98 countries for the years 1992–2008. While democracy measured by means of an index variable covering the entire range from perfect democracy to perfect autocracy turns out to be insignificant, dummy variables indicating transition to higher levels of democracy reveal a statistically highly significant negative effect of democracy on a country’s defense burden. Allowing for country-specific effects reveals heterogeneity in the effect of democracy across countries. Apart from the effect of democracy, the estimation results indicate strong spatial dependence of military burdens across countries. Moreover, they provide statistical evidence for a peace dividend, for substitution effects in defense spending and for a negative effect on the military burden for countries when they exhibit a trade surplus instead of a trade deficit.     

The Serbian defence institution: the need for clear policy guidance to improve the Serbian defence planning,management, and command processes

ABSTRACT

The uncritical layering of western liberal defence governance norms and concepts on top of existing legacy concepts has impeded achieving coherent military capabilities and capacities when Serbia’s political and military leadership tried to reform the defence system using Western benchmarking principles and Western countries’ best practices. The process of this change has been more valuable than its actual output, as defined by increased capabilities. Such outcomes should be reflective of policy guidance, and can be thought of as closing the trinity loop of a defence planning system: plans, money and execution. This article addresses two key functional areas of the Serbian defence institution. First, it assesses the current state of defence planning to discern its strengths and weaknesses to ascertain if plans are tied to financial decision-making. Second, a full examination of current Serbian defence management is conducted to discern whether weaknesses exist that distract from producing operational capabilities. Both areas are analyzed thoroughly and some solutions for change are proposed. Also, the article analyzes the appearance of two negative phenomena in the planning process – economization and managerialism.     

Reconsidering publicness in alliance defence expenditures: NATO expansion and burden sharing

Over the past several decades, NATO allies have debated the relative burdens and benefits of NATO membership. Recently, this concern surfaced as members debated the magnitude and distribution of NATO expansion costs. This paper presents an economic model of defence alliances to identify the benefits and burdens of alliance membership. It suggests that defence expenditures provide public benefits if alliance members share common interests and mutual commitment; defence expenditures provide private benefits if countries lack common interests and mutual commitment. The model's results are used to discuss NATO's evolving roles and missions, NATO expansion and burden sharing across NATO members.     

Guns for Butter? Empirical Evidence from China

Abstract

This study examines the causal nexus between defence spending and education expenditure in China using the bootstrap Granger full-sample causality test and sub-sample rolling window estimation. The full-sample result indicates that there is no causality between defence spending and education expenditure. By adopting a time-varying rolling window approach to revisit the dynamic causal relationships, this article identifies a negative unidirectional causality running from education expenditure to defence spending. The finding suggests that it is the education expenditure crowds out defence spending in China rather than reverse. No causality is demonstrated from defence spending to education expenditure, indicating that an increase in military spending will not crowd out expenditure on education. The results could be partly explained by that the education expenditure in China is below the requirement of corresponding economic growth, urging for more financial budget. Whereas the findings support a negative trade-off between defence and education expenditures, they refute the theory of ‘guns for butter’.     

DETERMINING THE DEFENCE INDUSTRIAL BASE

This paper models the determination of the defence industrial base – the number of different military systems a country decides to maintain. High R&D costs means that few countries can afford to produce major weapons systems and the producers also import systems. Non‐producers rely on imports and we assume their demand is driven by regional arms races. Military capability is determined by the number of systems and the quantity and quality of each. We examine how the defence industrial base is influenced by military expenditures, R&D costs, export controls, the nature of regional arms races and a variety of other factors.     

A LONG‐RUN ANALYSIS OF DEFENCE SPENDING IN THE NATO COUNTRIES (1960–99)

This paper analyses the long‐run demand for defence output through a homogeneous treatment of 15 NATO member countries between 1960 and 1999. We carry out a progressive study of the interactions between either defence spending or defence burden and their main determinants: income, external threat and allied military spending. To that end, we use time‐series analysis with endogenously determined structural breaks. We further consider individual country functions related to one another through a common correlated effects method, in order to take into account explicitly the connections between members of an alliance.     

Defence budgets in the post-Cold War era: a spatial econometrics approach

This paper examines the determinants of national defence budgets in the post-Cold War era employing a spatial econometric framework. Using data for 124 countries over a 16-year time period, I examine spatial relationships in defence spending to investigate how countries account for the military spending of other countries when setting their budgets. Using specially developed weighting matrices, the regression results indicate that defence budgets are positively spatially correlated. These results provide support for the use of ‘external’ factors when examining defence budgets over this time period. The importance of a country’s spatial location when setting its budget is further examined through the identification of regions of high and low defence spending.     

Asia-Pacific Demand for Military Expenditure: Spatial Panel and SUR Estimates

This article investigates the demand for military expenditure for a sample of key Asia-Pacific countries. Spatial panel demand estimates are presented for three joined spatial units using a fixed-coefficient spatial lag model based on a two-step efficient GMM estimator. Spatial autoregression estimates are next presented for 1991–2015, founded on alternative kinds of country connectivities, such as contiguity, inverse distance, discrete distance, and power-projection considerations. Finally, 11 select countries’ demands for defense equations are estimated using seemingly unrelated regressions. From alternative perspectives, these estimated models indicate how Asia-Pacific countries respond to the defense spending of other countries. In the spatial runs, free riding is prevalent despite the growing military might of China, which apparently is not generally viewed as a threat. For the sample period, the projection of Chinese or American power is a relevant spatial factor. The main threat is reflected in non-U.S. allies’ reaction to U.S. allies’ defense spending during 1991–2015 and to Chinese defense spending after 2002.     

Arms Racing and the Costs of Arms Imports: A Stochastic Model

The paper draws on the demand for arms imports model of Levine and Smith (1995, 1997) using stochastic processes of the birth-death type in steady state. It assumes two antagonistic regional players engaged in an armaments race satisfying their demand for military hardware through imports from the international market. The paper examines the effects that arms imports have on the military balance between the two recipient countries. It constructs a state space of possible outcomes in terms of the military balance/imbalance between the two countries involved. A new variable is introduced which tries to encapsulate the absolute difference in their respective security functions at any moment in time. This variable affects the transition from one state of affairs to the other.     

Are the Baltic States and NATO on the right path in deterring Russia in the Baltic?

ABSTRACT

The aim of the current study is to discuss which particular factors Russia considers as sufficient deterrent capabilities and whether the national defence models implemented in the Baltic countries have the potential to deter Russia's military planners and political leadership. Whilst the existing conventional reserves of NATO are sizeable, secure, and rapid, deployment is still a critical variable in case of a conflict in the Baltic countries because of the limited range of safe transportation options. However, whilst the Baltic States are developing their capabilities according to the priorities defined by NATO in 2010; which were updated after the invasion of Crimea in 2014, Russian military planners have meanwhile redesigned both their military doctrine and military forces, learning from the experience of the Russo-Georgian war, the Russia-Ukraine conflict, and other recent confrontations. Accordingly, there is a risk that the efforts of the Baltic countries could prove rather inefficient in deterring Russia.     

A simple and untraditional analysis of western alliance burden‐sharing

The original Olson and Zeckhauser model of alliance burden‐sharing was based on the following four assumptions: (1) alliance defence is a pure public good; (2) allied nations make their security contribution decisions without consulting the other allies; (3) alliances produce only a single public good; and (4) alliance defence is produced with equal degrees of efficiency in all alliance nations. But while the first of these assumptions has received a great deal of attention in the alliance literature, the remaining ones have received comparatively less attention, particularly in terms of empirical analyses. This paper synthesizes a varied literature developed around these four assumptions, both substantively and theoretically, and shows that when these assumptions are brought closer to real world approximations, hypotheses regarding the potential for security cooperation with less free‐riding result. This article also provides a simple test of Western alliance burden‐sharing in the areas of military spending, development resources spending, and research and development spending that supports the hypothesis positing more equitable burden‐sharing.     

THE RELATIONSHIP BETWEEN EXTERNAL DEBT,DEFENCE EXPENDITURES AND GNP REVISITED: THE CASE OF TURKEY

This paper contributes to the continuing debate on the economic effects of military expenditure by undertaking a case study of Greece. Within Europe Greece provides a particularly interesting object of study. It has the highest military burden in Europe and NATO, is the only European Union country situated in the unstable environment of the Balkans, faces a military threat from Turkey, and has a very weak economy. After some background analysis of the economy and military expenditure, the paper investigates the determinants of Greek military expenditure as well as whether the high military burden has played an important role in Greece's poor economic performance over the period 1960–1996. It estimates a Keynesian simultaneous equation model with a supply side, which allows the indirect effects of military expenditure to be captured explicitly. It concludes that the major determinants of Greek defence spending are not economic but strategic (the threat of war) and that the direct effect of defence spending on economic growth as well as the indirect effects through savings and trade balance are all significantly negative. On the basis of such strong results, the paper concludes that defence spending is harmful for the Greek economy.     

Asymmetric effects of military expenditure between Turkey and Greece

One of the major topics of the defense economics literature regarding Turkey and Greece has been the empirical modeling of various aspects of arms racing. However, despite a considerable amount of research, little evidence has been found in favor of an arms race between the two countries. In the literature, this failure of applied studies has been attributed, among other reasons, to the sensitivity of the results to the underlying model specification, to small sample size, and to measurement issues. This study uses novel, nonlinear, models to investigate the possible relationship between the military expenditures of the two countries. It is assumed that if there are two regimes characterizing the low (or negative) and high-growth military expenditure periods, the growth rates of one country's military expenditure may have distinct effects on the military expenditure regimes of the other country or may contribute to the change from one regime to another. The nonlinear models examined are Smooth Transition Regression models (STRs). Strong evidence of nonlinearity for Greece is found, with asymmetry relating to two distinct regimes through lagged Turkish military expenditure changes.     

France and its allies: A comparative study of defence spending trends since 1985*

Within the EU France devotes to defence the largest financial and human resources although it is not the richest country, nor has it the largest population or labour force. The cost of nuclear weapons accounts for only a small fraction of this abnormally high French defence effort. If France had restructured its military capabilities at the same rate as its principal Allies during the 1985–1994 period, then French defence outlays would be about 20% less than at present. The fundamental reasons for France's excess defence outlay comprise virtual total dependence on French sources for equipment, produced in very small numbers; a military presence outside of Europe; and too many personnel. These deficiencies, and the consequent absence hitherto of a “peace dividend”, indicate a failure to identify the country's real strategic requirements, and a lack of will to reorganise efficiently French defence. The recently announced reform towards an all‐professional force is unlikely to achieve the potential and desirable improvement in cost‐effectiveness.     

Property distribution and configurations of sovereign states: A rational economic model

A nation's wealth is both an object of conquest to covetous aggressors and a resource to its owners for self defense. To maintain autonomy every country must mount a defense which either makes its capture (1) more expensive than any aggressor can afford, or (2) more expensive than it is worth to aggressors. Whether this condition can be satisfied for all countries simultaneously depends as shown in this paper on relative efficacy of military offense versus defense, the aggregate of wealth among nations and its distribution, and the benefits a conqueror may obtain from conquest, including the duration of these benefits. The paper shows how these factors fit together to determine the sustainability and stability of the international distribution of property as embodied in the configuration of sovereign states.     

Mandated defence offsets: can they ever deliver?

Defence offsets are elements of defence procurement deals additional to the primary content. Offsets are usually expected to yield technological or industrial benefits to the purchasing country (e.g. countertrade, technology transfers, or additional jobs) and military buyers often require suppliers to make offsets available “cost-free.” The authors argued previously that such strategies achieve little of value to buyers that lack market power and are unnecessary otherwise, since purchasers with the market power to extract more value for money from foreign suppliers can do so anyway. This article also focuses on the supply side of offset deals. The USA is the world's largest defence offsets supplier but the US government opposes offsets demands as economically inefficient and trade distorting. Even if offsets are inefficient and trade distorting, they may still benefit a materiel-exporting country such as the USA as they may induce exports and create associated benefits for the offsets provider.