Spending on personnel or equipment: panel analysis of military expenditures in the NATO countries 2005–2019

Abstract

ABSTRACT Defence effort is often discussed in terms of relative military spending – as % of GDP. The aggregate nature of this measure, however, hides important within-budget dynamics. Specifically, states have to make hard choices about distributing their spending among personnel and equipment expenditures. NATO has adopted a recommendation that 20% of the defence budget should go to equipment. Our paper contributes to the emerging literature on determinants of personnel vs. equipment share. We perform panel data regression on NATO countries between 2005 and 2019. Our results indicate that (i) equipment is more elastic to overall military expenditures than personnel, and (which is a novel contribution of our paper) (ii) that larger All-Volunteer Forces (AVF) create demands for increased personnel spending even well after the transitioning period, (iii) How mature is the AVF plays no role, while relative personnel costs is an important predictor. The second result yields especially important implications for the renewed policy debates on the limits of the AVF model in the context of European security.