Unpacking the dynamics of military spending in a globalized world: economic impacts with a network GVAR model

Abstract

PurposeIn this work, the authors analyze the dynamic interdependencies between military expenditures and the real economy for the period 1970–2018, and the authors' approach allows for the existence of dominant economies in the system.Design/methodology/approachIn this study, the authors employ a Network General Equilibrium GVAR (global vector autoregressive) model.FindingsBy accounting for the interconnection among the top twelve military spenders, the authors' findings show that China acts as a leader in the global military scene based on the respective centrality measures. Meanwhile, statistically significant deviations from equilibrium are observed in most of the economies' military expenses, when subjected to an unanticipated unit shock of other countries. Nonetheless, in the medium run, the shocks tend to die out and economies converge to an equilibrium position.Originality/valueWith the authors' methodology the authors are able to capture not only the effect of nearness on a country's military spending, as the past literature has documented, but also a country's defense and economic dependencies with other countries and how a unit's military expenses could shape the spending of the rest. Using state-to-the-art quantitative and econometric techniques, the authors provide robust and comprehensive analysis.