Military Expenditure: Threats, Aid, and Arms Races

Abstract

Using global data for the period 1960-99, Collier and Hoeffler estimate neighborhood arms races. They find that the level of military expenditure is strongly influenced by the expenditure of neighbors. The authors estimate an "arms race multiplier," finding that an initial exogenous increase in military expenditure by one country is more than doubled in both the originating country and its neighbor. An implication is that military expenditure is, to an extent, a "regional public bad."

Potentially, there is an offsetting public good effect if rebellions are deterred by military expenditure. However, instrumenting for military expenditure, the authors find no deterrence effect of military spending on the risk of internal conflict. So there appears to be no regional public good effect offsetting the public bad arising from a neighborhood arms race.

This paper - a product of the Development Research Group - is part of a larger effort in the group to study the economics of conflict.