Is Military Spending Converging Across Countries? An Examination of Trends and Key Determinants

IMF Working Papers, September 20, 2019

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The paper studies the evolution of worldwide military spending during 1970-2018.
Military spending in relation to GDP is converging, but into three separate groups of countries.
The largest group, responsible for 90 percent of worldwide spending, has outlays that have remained stubbornly high.
In developing economies, military spending reacts to:
- improvements in security conditions, and
- military spending in neighboring countries.
In developing economies, rising social spending tends to crowd out military outlays; this crowding out is not observed in advanced economies.
With social outlays projected to rise as developing countries look to achieve the Sustainable Development Goals (SDGs), military spending could come under pressure to fall further.

Security conditions: improvements in security conditions are associated with reductions in military spending in developing economies.
Neighbor effects: military spending in neighboring countries influences a country’s military outlays.
Fiscal trade-offs: rising social spending in developing economies is associated with lower military spending (crowding out), while advanced economies do not show this substitution.

Further increases in the peace dividend are possible if security conditions improve and regional spending dynamics change.
As developing countries increase social outlays to pursue the SDGs, military spending in those countries could decline under fiscal pressure.
Advanced economies may not experience the same fiscal trade-off between social and military spending as developing economies.

Global coverage spanning 1970-2018.
Data draws on information from the Stockholm International Peace Research Institute (as reflected in keywords and subject matter).

Source: IMF Working Papers — Benedict J. Clements, Sanjeev Gupta, Saida Khamidova, September 20, 2019.