Defence Budgets in the Post-Cold War Era: A Spatial Econometrics Approach

This paper examines the determinants of national defence budgets in the post-Cold War era using a spatial econometric framework. Using data for 124 countries over a 16 year time period, I examine spatial relationships in defence spending to investigate how countries account for the military spending of other countries when setting their budgets. Using specially developed weighting matrices, the regression results indicate that defence budgets are positively spatially correlated. These results provide support for the use of "external" factors when examining defence budgets over this time period. The importance of a country's spatial location when setting its budget is further examined through the identification of regions of high and low defence spending.