Economic Determinants Of Latin American Defense Expenditures

Abstract

This article examines the economic determinants of military spending levels in developing countries through a time-series analysis of 10 Latin American countries. The paper integrates a number of main themes in the defense economics literature. The results indicate that a large proportion of the observed variability in military budgets can be explained by one of four alternative models that include either economic variables (gross domestic product and either government revenues or government expenditures) or military budget levels lagged one year, or both. A major conclusion is that it is difficult to predict which of the four models is most appropriate for each country; a priori knowledge of a state's oil exports, regime type, indigenous weapons production, or relative resource constraints is of little help. Since no common model was found, forecasts that use economic variables should be done on a case-by-case approach, also considering the timing of fiscal impacts.