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.