NATO Burden-sharing: Rules or Reality?

Abstract

In 1978 and again in 1985, the NATO ministers pledged to increase their real military expenditures by 3 per cent per year. The purpose of this paper is to demonstrate that fixed-percentage pledges of this kind are unworkable policies since they do not account for an ally’s income cycles, its incentive to rely (or to free ride) on other allies’ military expenditures, or an ally’s contingencies or future threats. A secondary, but related, purpose here is to re-examine what the true determinants of defence burdens are. To accomplish this task, we formulate a reduced-form demand equation for an ally’s defence expenditures, and then present ordinary-least-squares estimates of this equation for nine NATO allies. The estimated coefficients of these equations are used to forecast real growth in defence expenditures. These predicted growth rates are in significant contrast with the fixed 3-per-cent pledges. Except for the USA, no ally is predicted to come near to their agreed-upon pledges.