The Swiss Defense Spending Flashcards
The determinant of swiss defense spending
equation
the effect of military spending on economic growth may involve an interaction term between the level of external threat and the level of spending
what influence the Swiss defense spending
in the short run: Bureaucratic inertia (last year spending)
Long run: USA defense spending (external threat)
if there is a global threat or conflict the US responds –> US spending is an indicator of external threat.
CH respond to the level of external threat as perceived by the large NATO countries
neither economic growth not employment and budget outlook have a significant impact on the Swiss defense spending. –> the Swiss policy makers don’t use defense spending for short run macroeconomic purposes.
Neutrality, alliances and defense spending
Perception of external threat of European countries do not seems to be a function of a country’s international alliance membership exclusively.
Neutrality doesn’t fully spare a country from external threats in a world of major alliance rivalry
The level of such threats seems to be lower for neutral countries (there appear to be cost saving associated with neutrality)
Siine the finding applies equality to Austria (which has borders with two alliance groups) and Switzerland (which is surrounded by countries belonging to a single alliance) indicate that the critical issue is indeed international status (neutrally) rather than location.
What does neutrality mean?
you don’t join any military alliance, you don’t contribute to any alliance but you don’t expect any help from any other country –> CH should protect itself
as it is neutral there is no need to spend as much
Explanation for lower defense spending in CH
free-riding on the containment policies of the US and NATO
Neutrality is indeed associated with a lower level of external threat
economic factor did not have any significant effect on CH defense spending
Implication - Terrorism and Swiss defense spending
most likely threat in the near future
fifths threat materialized primarily in the context of existing security allies (the US and its allies vs Islamic fundamentalists) swiss military spending is likely to remain the same in the future
if new threats (from terrorism of other sources) become more diffused (that is, less alliance specific) there will be greater need for Ch to look after itself. –> this would result in higher defense spending and neutrality may no longer carry the advantages it did in the past.
terrorism and defense spending
there is no evidence so far that policymakers outside the US and the perceive terrorism-related threats as becoming more diffused
Impact of defense spending on swiss economic growth
Swiss defense spending statistically insignificant (but negative) effect on economic growth. –> there is not evidence that is bad for growth
investment is positive and significant. there is not crowding out effect in CH!
the net effect of defense spending on private investment is nil!
the coefficient on civil government spending is positive but insignificant.
the coefficient of the interactive term is positive and statistically significant = defense spending may have enhanced economic growth in CH during cold war (period od external threat) but it has not contributed to growth in the post cold war are.
cantonal defense spending
Characteristics
High heterogeneity in the distribution of military spending and employment across cantons
Cantonal unemployment and defense spending
cantonal unemployment is negatively related to cantonal allo nation of defense resources
–> the more military spending a canton attract (or the more defense employees it has) the lower the employment rate
only the cantonal defense employment variable is statistically significant
Variability in cantonal unemployment and defense spending
the variability of unemployment is to a substantial degree, negatively related to the cantonal allocation for defense employment
–> the larger the share of defense employment located in a canton, the more stable its rate of unemployment.
cantonal defense employment reduced volatility.
