Redefining the Nexus of Military Spending Among Southeast Mediterranean Countries in the Presence of Nonlinearities

Abstract

ABSTRACT The paper presents evidence on the relationship concerning military spending among Southeast Mediterranean countries (Greece – Turkey, Israel – Egypt, Israel – Turkey) over the period 1962–2020. We account for the presence of nonlinearities in the bilateral relationships of defence spending by applying Threshold Autoregressive methodologies and utilize kink regression analysis to detect the existence of a country’s military spending threshold that signals a threat to another country of the region. Our empirical results show: First, there is a nonlinear strategic interaction between the countries examined, in the sense that their defence spending policy is cointegrated. Second, there is no arms race among the countries examined, but only unilateral effects. Third, there is consistent evidence of a possible military spending equilibrium, in the absence of friction between the countries involved (peace threshold). Our findings have important policy implications as they indicate, first, that each country in the region should not determine its level of military spending considering only operational factors, but also considering the signaling of its military spending on its neighboring countries and, second, that there is space for peaceful solutions regarding disputes in the Southeast Mediterranean region.