Worldwide Military Spending, 1990-95


WP/96/64-EA

Worldwide Military Spending, 1990-95
by Sanjeev Gupta, Jerald Schiff, and Benedict Clements


This paper reviews recent developments in military expenditures
worldwide and for different country groups. Military spending, which began
to decline in the mid-1980s, has continued to decline through 1995, falling
to 2.4 percent of GDP from 3.6 percent of GDP worldwide during 1990-95,
a decline observable in all regions and for developing and industrial
countries alike. The largest declines occurred in countries in transition,
4.9 percentage points of GDP, and the Middle East and Europe, 1.8 percentage
points of GDP. In nominal terms, military spending fell by US$120 billion
over the five years, with most of the decline in the former U.S.S.R. The
peace dividend in 1995, calculated by comparing actual spending with that
which would have resulted from an unchanged military spending-to-GDP ratio,
was some US$345 billion dollars compared with 1990 and US$720 billion
compared with 1985.

It appears that countries making sharp cuts in military spending
also reduced nonmilitary spending as well as the fiscal deficit, thereby
encouraging private investment. Military spending cuts have also allowed
countries to maintain or increase social spending in the face of total
spending cuts. On the other hand, higher military spending may have
crowded out private investment and, for some countries, public investment.

Countries with Fund programs appear to have reduced military spending
more sharply than developing countries as a whole, although this largely
reflects outcomes in the transition economies. Evidence over a longer time
period suggests that military spending has been less resilient in program
countries than nonprogram countries, as nonprogram countries appear to have
relied more heavily on cuts in military spending to implement fiscal
adjustment.