The Greek-Turkish Rivalry: A Bayesian VAR Approach

Abstract

ABSTRACT The persistent Greek-Turkish rivalry has garnered considerable attention among defense economists, prompting an exploration of whether these two nations are locked in an arms race. The longstanding divisions between them are deeply rooted in historical conflict and mutual distrust, and diplomatic efforts aimed at reconciliation have proven largely ineffective, with brief rapprochements typically ending swiftly. Recent discoveries of natural gas in the eastern Mediterranean have exacerbated tensions, leading to military expansion plans that have heightened the risk of escalation. Given the lack of consensus in empirical studies on the relationship between their military expenditures, we employ a linear Bayesian Vector Autoregression (BVAR) modeling approach to explore potential interdependencies among four distinct proxies of the states’ physical arms build-up. Utilizing an annual dataset running from 1960 to 2020, our findings reveal that shocks to one nation’s military expenditure do not significantly affect the opponent’s defense spending. This suggests that contrary to strategies focused on the costly maintenance of strategic balance, these rivals should prioritize cooperation to jointly foster peace and economic development across the broader Mediterranean region.