MILITARY EXPENDITURES AND INEQUALITY IN THE MIDDLE EAST AND NORTH AFRICA: A PANEL ANALYSIS

Abstract

Middle Eastern and North African (MENA) countries have been characterized by the preponderant role of their military forces in economic matters, as demonstrated by the high levels of military spending and the growing industrial complex. While extensive research examines the relationship between military expenditure and economic growth, little attention has been paid to the effect of military expenditure on economic inequality. Studying inequality in MENA countries provides an opportunity to assess factors that shape the countries’ level of economic well-being, which has greater public policy implications in terms of how society allocates its scarce resources among competing needs. This paper examines two important issues. In the first part of the paper, we examine the relationship between military spending and inequality in MENA countries using a panel regression for country-level observations over the period 1987–2005. The empirical results indicate that military spending has a strong and negative effect on inequality. Contrary to the conventional wisdom, in MENA countries a systematic increase in military spending could reduce the level of inequality. In the second part of this paper, we examine the demand for military expenditure; we find that factors such as inequality level and per capita income negatively affect military expenditure.