Military Expenditures and Economic Growth: Evidence from NATO and Non-NATO Alliances

Abstract

ABSTRACT Given its significant socioeconomic implications, the nexus between military expenditures and economic growth has been the subject of an extensive theoretical and empirical debate. The present study focuses on NATO vs. non-NATO member countries (i.e. 141 countries) as a case study to empirically examine the aforementioned complex relationship during the period 1992–2020. Using annual data, we employ a panel model, as well as spectral preliminary analysis that takes into account the nonlinear behaviour of our series, positive or negative causal relationships and their coherence characteristics across both time and frequency domains. Findings reported herein from an extended panel of several states suggest that military expenditure enhances economic growth under the NATO alliance case, whereas it becomes harmful for growth in the case of non-NATO alliances such as the SCO & CSTO. Our study contributes to the understanding on the crucial role of a military alliance membership in the formation of the economic growth and military spending relationship. Hence, our findings can be beneficial for policymakers to account for the existence of possible spillovers that may arise from country participation in a military alliance.