Abstract
For 1990–2019, this study presents two-step GMM estimates of EU members’ demands for defense spending based on alternative spatial-weight matrices. In particular, EU spatial connectivity is tied to EU membership status, members’ contiguity, contiguity and power projection, inverse distance, and arms trade. At a Nash equilibrium, our EU demand equations are derived explicitly from a spatially based game-theoretical model of alliances. Myriad spatial linkages among EU members provide a robust free-riding finding, which differs from the spatial and non-spatial literature on EU defense spending. Even though the EU applies common trade policies and allows for unrestricted labor movement among members, members’ defense responses adhered to those of a defense alliance. Moreover, EU defense spending exhibits positive responses to GDP and transnational terrorist attacks, and a negative response to population. During the sample period, EU members did not view Russia as a military threat.
Highlights
First introduced by Olson and Zeckhauser [1], the economic theory of alliances is a game-theory-based representation that continues to exert major influences on empirical studies of the demand for military expenditure (ME)
We present an underlying theoretical model for an European Union (EU) member’s defense demand that is sufficiently general to allow for alternative spatial considerations arising from members’
Results for EU and non-EU North Atlantic Treaty Organization (NATO) countries combined are reported in Models
Summary
First introduced by Olson and Zeckhauser [1], the economic theory of alliances is a game-theory-based representation that continues to exert major influences on empirical studies of the demand for military expenditure (ME) (see, e.g., Douch and Solomon [2]; Dudley and Montmarquette [3]; Hilton and Vu [4]; Kim and Sandler [5]; McGuire andGroth [6]; Smith [7,8]). Free riding motivates an ally to reduce its defense spending in response to collective increases in that of the other allies [10,11]. Defense spending gives rise to alliance-wide and country-specific, jointly produced outputs, the anticipated negative reaction to defense spillovers and the expected disproportionate burden sharing may be curbed or even reversed [13,14,15]. In the former case, free riding is reduced
Sign-in/Register to view highlights & summary Sign-in/Register to access full text options 
Talk to us
Join us for a 30 min session where you can share your feedback and ask us any queries you have
Schedule a callDisclaimer: All third-party content on this website/platform is and will remain the property of their respective owners and is provided on "as is" basis without any warranties, express or implied. Use of third-party content does not indicate any affiliation, sponsorship with or endorsement by them. Any references to third-party content is to identify the corresponding services and shall be considered fair use under The CopyrightLaw.
