The Demand for Military Expenditure

Question 1

Main reasons why countries build weapons:

Answer 1

1 Arms races:
= time-series patterns of military expenditures in terms of ACTIONS-REACTIONS behavior between two or more rivals who do not trust each other and disagree about the distribution of power between themselves.

2. Organization and bureaucratic politics
   the main determinant of this year’s budget is last year’s budget.

Question 2

2. Organization and bureaucratic politics

Answer 2

Emphasized “instrumentalism” and bargaining over the defense budget, starting from the status quo.

the main determinant of this year’s budget is last year’s budget.

you might have more expenditure this year although the threat didn’t change because they keep the same budget + inflation. of they had to buy new suff.

Question 3

1 Arms races:

Answer 3

= time-series patterns of military expenditures in terms of actions-reaction behavior between two or mora rivals who do not trust each other and disagree about the distribution of power between themselves.

defense spending is determined by the:

• ME of rival (“reaction / defense” coefficient) Threat
• Economic burden of armament (fatigue coefficient) (the economic of the country will condition the amount of money you spend on defense. this amount can be amplified or contained by the economy of the country.
• Perceptions of leaders which are exogenous to the level of arms (grievance coefficient) Leader’s goal. Regan wanted the US to be the most powerful country.

–> more suitable for enduring rivalries of countries in conflict (Pakistan-India, Greece-Turkey..)

Question 4

what influence arms increases

Answer 4

income
type of government
strategic factors,
security /threat perceptions (internal and external)

Question 5

The demand for military expenditure

Considering the rational actor model: neoclassical model: a national state that maximized welfare as a function of

Answer 5

W= W (S, C, N, ZW)

W = W (security, economic variables, population, other exogenous political influences)

Question 6

budget constraint

Answer 6

Y = PcC + PmM

Y: nominal Aggregate income

all these things are important, but you BUDGET IS LIMITED. this will condition the happiness you get.

Question 7

security function

Answer 7

S = S (M, M1, .. Mn, ZS)

M: military forces of the country
M1… Mn: military forces of other countries
ZS: other strategic variables

if you have a lot of alliances you won’t have to spend so much.

Even if there aren’t any unknown threat there might be some unknown threats.

Question 8

Demand for military expenditures

Answer 8

M = M (pm/pc, Y, N, M1, …. Mn, ZW, ZS

ZW: other exogenous political influences
ZS: other strategic variables

Question 9

Econometric estimation of the demand for military expenditures

Answer 9

ME = f (income, spilling, threat, economic variables, political variables, dummies)

Income: GDP

Spillins: the lagged military expenditure of all its allies

Threat: the (lagged) military expenditure of its adversaries

Economic variables: the size of the budget deficit (if you have deficit you can’t spend a lot)

Political variables: the ruling government’s party affiliation

Dummies: capture other environmental factors such as the presence of a war or a change in strategic doctrine

Question 10

The Demand for military expenditure in third world counties

Answer 10

Log Military Burden = Lagged MB, Income + (last year spending)
Population +/-
External war +
Civil war +
Security web military expenditure + 
Potential enemies military expenditure + 
Enemies military expenditure +
Unknown threat +
Democracy-Autocracy -
China, USSR, US Dummy + 
ME dummy + 
Great power enemy dummy +

Question 11

Theoretical expectation

Income (GNP)

Answer 11

+
Given the public good nature of defense –>
higher income is likely to lead to higher spending

Question 12

Theoretical expectation

Population

Answer 12

Negative if large population can provide some intrinsic security (large armies) either by reducing the need for high military expenditure or hi-thechonogy equipment.

Positive if defense is a “pure public good” and consequently larger population should lead to higher military spending

BUT: Defense spending is a public good. it is not rival and not exludable The consumption of one cannot reduce or exclude the consumption of another.

If national defense is a public good –> the bigger the population the more you spend. This is the case for health or education, but not for defense.
it should be negative -_> your protect your TERRITORY and BORDERS. It doesn’t change with population –> defense is a special public good.

Question 13

Theoretical expectation

Civil war
External war

Answer 13

A country at civil / interstate war needs to replace stock of arms and ammunition used up in the fighting

Question 14

Theoretical expectation

Strategic consideration: security web

Answer 14

Determinant of external threat

total military spending of all countries in the security web +

all countries capable of significantly affecting a country’s security. neighboring countries and regional powers capable of projecting their influence beyond their immediate land and sea borders

Question 15

Theoretical expectation

strategic consideration: enemies

Answer 15

Determinant of external threat

total military spending on enemies +

the tow countries must either currently be currently engaged in some form of armed conflict of must have gone to war in the past, with the grievance still unresolved.

Question 16

Theoretical expectation

strategic consideration: potential enemies

Answer 16

Determinant of external threat

total military spending of potential economies +

the two countries be must involved in a dispute with either a history of, or clear potential for. militarized confrontation.

Question 17

Theoretical expectation

democracy-autocratic-distatoship-totalitarian

Answer 17

democratic counties spend lees on military than non-democracies

Autocratic states are more likely to rely on the military to RETAIN their power

Dictatorship are more likely to rely on a culture and ideology of militarism to JUSTIFY their power

Totalitarian states are also more likely to be able to maintain unjustifiable and inefficient levels of spending by the military and other governmental department in pursuance of the INTEREST OF THE PUBLIC ELITE rather than the country as a whole

Question 18

Theoretical expectation

Great power enemy dummy

Answer 18

+ picks up a relation to enmity with a superpower

Question 19

Theoretical expectation

USA / CHINA / USSR dummy

Answer 19

+ capture proximity to USA / CHINA / USSR

Question 20

ME country dummy

Answer 20

+ capture bad neighborhood or contagion effects

Question 21

what make countries powerful

Answer 21

size
population
economic might
military might

Question 22

Military spending Developing countries

Cold war era

Answer 22

Income insignificant

population significant negative impact
- large population offer some security itself
small countries spend more on hi-thecnology weaponry rather than large army or
- large population place grater extra demand on civil consumption needs than on security needs

Strategic variables:
military expenditure in the security web affect MB but potential enemies have even more effect.

External war is statistically significant

ME dummy is very important –> high contagion effect

Question 23

Military spending Developing countries

Post Cold war era

Answer 23

External war become complexity insignificant

Civil war dummy is also insignificant (*) significant coefficient

Security web, CHINA, MEAST are much lower (stil very significant)

external war is insignificant

Question 24

Military spending Developing countries

Cold war vs Post Cold War

Answer 24

Very little evidence that the relationship between different classes of threat and military spending change between the two periods

Things that influence defense spending in a country are the same all the time.

what more influence if you are a democracy.

income is not important!

Question 25

What most influence military spending in developing countries

Answer 25

if you are a democracy 
Population -
Potential enemies 
CHINA and ME
security web

NO influence
Income!!!

Question 26

Military expenditure in developed countries: EU 15

proportion of GDP

Answer 26

very heterogeneous.

from 1% of Luxembourg to more than 5% of Greece

very little uniformity in the factors that determine each European country’s demand for ME
–> when people talk about the development of the Common European Security and defense policy should keep this in mind!
it won’t happen! country would have to give up external sovereignty

Question 27

Demand for military expenditure in developed countries: EU 15

Answer 27

Military expenditure

Income (GDP) +
Population -
Non.military gov. spending - 
Trade (+/-)
NATO (+/-)
US +/-
lagged dependent +
Country-specific dummies and variables +/- (Greece Spain, Portugal, UK)

Question 28

Non - military government spending

Answer 28

represent the economic burden of defense and is expected to have a negative sign to account for the opportunity costs of defense.

Health, education, road infrastructure eat. if you spend more in education, then you have less money left. Trade-off

Question 29

Trade influence on military spending

Answer 29

(-) if trade has a pacify effect
trade is a resources of income and wealth for many countries, trade has a pacifying effect, the more a country trade the wealthier it gets, the less incline to fight.

+ if gain from trade can be converted to military might.
China is using trade to finance military power.

Question 30

Countries related dummies: Greece

Answer 30

the perceived threat after the Turkish invasion in Cyprus in 1974
turkey military expenditure is included to see whether Greece’s military expenditure deputy on the enemy’s military spending

Question 31

Countries related dummies: Portugal

Answer 31

a dummy to capture the increase military burden prior the collapse of the dictatorship and the end of the colonial wars

Question 32

Countries related dummies: Spain

Answer 32

a dummy to account for the increase in military expenditure due to the war over the Malvinas in 1982,
the export-led growth of the Spanish defense industry since the early 1980s and membership of the NATO alliance.

Question 33

Countries related dummies: UK

Answer 33

a dummy for the year 1981 captures the strategic change in NATO that affected the country’s military spending - the main supporter of the US

Question 34

Result: developed countries EU 15

Answer 34

Income has mostly a significant positive effect on military spending

Population: mostly negative effect

Non-military gov. spending (crowding-out) apples for 5 EU counties –> in these countries increase in other non-defense gov expenditure lead to cuts in defense spending or the contrary.

Most member are follower of NATO

PT, NED, GRE follower of US. GER, LUX, free riders

Country related dummies are all significant. For grace significant positive sign!

Question 35

Regime type and the provision of the public good

Democracy vs. non democracy in the provision of public goods

supply side and demand side:

Answer 35

positive effect of democracy on public good because of the:
supply side:
-median voter

-Institutional arrangements regarding the selection of leaders

demand side:
-civil liberties: freedom of speech, press, and association is likely to make the public in democratic countries more aware of security concerns. in autocracies you can’t protest, you don’t have freedom of speech of anything.

Question 36

The median voter

Answer 36

non democratic regimes are likely to under-provide public good because there are typically ruled by small elites that use the resources of their respective country to create personal wealth.
Democracies are likely to provide more public good because the means voter, who decided on public policy faces lower costs from governmental policies relative to the economic and political elite

Question 37

-Institutional arrangements regarding the selection of leaders

Answer 37

• the selectorate: groups of people who can affect the choice of leader and be the recipients of the benefits distributed by leaders
• and the winning coalition: the subgroup of the electorate maintaining incumbents in office in exchange for special privileged
  determine whether governmental policies provide public or private goods

--> 
in autocraties (winning coalition small and electorate large) leader have to provide the small number of their essential supporters with a relatively 

Autocratic institutional structure promote loyalty to the incumbent leader among the privileged few of the winning coalition which further enhances the provision of private good.
Autocracies: the amount of people that decide are relatively small. Elites are not willing to give much. Autocracies for proving public good should get money from the elites but they won’t support in this case.

Democracies: winning coalition is large relative to the selectorate, leader lack sufficient resources to reward their supporter with high levels of private goods.

the weak loyalty norm encourage defection from the incumbent leads’ winning coalition to opposing candidates this its forces leaders to adopt policies the provide relatively high level of public goods, such as security) to ensure their political survival. Rule by the people. the cost per person is smaller because everyone pays

democratic leader are likely to experience greater incentive (to survive in office) than autocratic outer parts to satisfy public demand for public goods. in democracy you can’t bribe. the best way to be reelected is to provide public goods.

–> democracies should provide more public good because the costs of median voter is low and leader have the incentive

Question 38

Defense is a pure public good: what does it mean?

Answer 38

one security concerns are met, democracies do not have any incentives to spend more

democracies have to satisfy the other needs of the electorate such as education, health ..

–> even in democracies spend more on public good, defense spending should be lower in a democratic political system than in a non-democratic one.

Question 39

Type of democratic government and defense spending (public good provision)

Parliamentary system in the provision of public good

Answer 39

Parliamentary systems: the legislative cohesion leads to policies aiming at pleasing the majority of voters and consequently increase spending on public goods

Question 40

Type of democratic government and defense spending (public good provision)

Presidential system in the provision of public good

Answer 40

presidential systems: unstable legislative coalisions and the struggle among different minorities over different issues on the legislative agenda lead to inefficiently low spending on public goods. This also promote the allocation of spending to powerful minorities.
One person is govern a lot of power, much more than in a parliamentarian system. Leaders elected by the people usually 50% +1.

Presidential democracies are characterized by a lack of flexibility and the dual legitimacy that arises for the independent election of both president and parliament.

in case of institutional conflict between president and parliament, the military can act as a leveraging power. –

–> presidential system can result in higher spending.
the military might use its power and influence in a presidential system to control the state, thus securing for itself higher rents and greater investment.

Presidential spend more because of the clash between president and parliament.

Question 41

Electoral rules and public good provision

Proportional representation system

Answer 41

(the % of voles received by each party matches the proportion of seats it hold in parliament)

lead the composition of public spending toward programs benefiting large groups in the population. proportional system allow representation of a greater variety of interests

spend more in the provision of public goods

the more parties you have in the parliament the more public good you provide

Question 42

Majoritarian voting system

Answer 42

a winner takes all system

lead the composition of public spending towards program benefiting swing (voters) groups in the population.
majoritarian systems are more grounded in local entered

spend more in defense.