The Effect of Arms Trade on Defense Spending According to the Level of Democracy: Panel Smooth Transition (PSTR) Model.

Document Type : Research Paper

Authors

1 lorestan university

2 Assistants Professor, Department of Economics, Payame Noor University, Tehran, Iran

10.30465/jnet.2023.42856.1946

Abstract

Based on theoretical foundations, the effect of arms trade on defense spending is ambiguous and influenced by various strategic, security and political factors. One of these factors is democracy. In this regard, this paper investigates the threshold effects of arms trade on defense spending in 30 selected countries for the period of 1995 to 2018, using the Panel Smooth Transition Regression (PSTR) model as one of the most prominent regime-switching models. For this purpose, democracy net is used as a transition variable. The linearity test results indicate strongly nonlinear relationship among variables under consideration. Moreover, considering one transition function and one threshold parameter, as a two-regime model, is sufficient to specification of nonlinear relationship among variables. The results indicate that threshold value is 4.75 percent and the estimated slope parameter is 0.61. In the first regime, the arms import has a positive and small effect on defense spending; that after crossing the threshold level and entering the second regime, this positive effect has decreased. Also, arms export has a positive effect on defense spending in the first regime; But after crossing the threshold level, in the second regime, this positive influence changes its sign and becomes negative. Based on other results, after crossing the threshold level of democracy and being in the second regime, the positive effect of the variables of GDP, population, income from natural resources and the conflict index, decrease (while maintaining the sign) and the negative effect of the health spending variable increases. These results show that the level of democracy plays an important role in the effect of the arms trade on defense spending and in general the effect of the variables included in the defense spending function.

Keywords

References

خداویسی، حسن؛ گل‌خندان، ابوالقاسم و بابائی آغ‌اسمعیلی، مجید (1398). تأثیر فساد بر هزینه‌های نظامی در منتخبی از کشورهای درحال‌توسعه. تحقیقات مدلسازی اقتصادی، ۱۰(۳۶): ۱۶۲- ۱۲۷.
دشتبانی، یاور و ابراهیمی، مهرداد. (1398). شناسایی و رتبه‌بندی عوامل مؤثر بر بودجه دفاعی: رویکرد اقتصاد سیاسی دفاع، اقتصاد دفاع، 4(11): 9-41.
دیزجی، منیره؛ پناهی، حسین و تقی‌زاده، حجت. (1388). اثر هزینه‌های نظامی بر بدهی‌های خارجی در کشورهای درحال توسعه. فصلنامه مدل‌سازی اقتصادی، 1: 136-117.
شهرازی، میلاد؛ دشت‌بانی، یاور و باغستانی‌میبدی، مسعود. (1398). نقش عوامل اقتصادی و سیاسی در تجارت تسلیحات (شواهدی برای کشورهای درحال‌توسعه و توسعه‏‌یافته). اقتصاد دفاع، 4(12): 9-26.
عنایت اللهی، سینا و باغستانی میبدی، مسعود. (1396). برآورد تابع تقاضای مخارج نظامی در ایران. فصلنامه اقتصاد دفاع، 2(3): 43-58.
فرجی‌دیزجی، سجاد؛ عصاری آرانی، عباس و مرادی سیف‌آباد، مصطفی. (1396). دموکراسی و مخارج نظامی: شواهدی از کشورهای درحال‌توسعه صادرکننده نفت. پژوهشنامه علوم سیاسی، 12(4): 69-104.
گل‌خندان، ابوالقاسم. (1396). تحلیل پویای رابطه منابع طبیعی و نظامی‌گری در کشورهای خاورمیانه. فصلنامه مطالعات راهبردی سیاست‌گذاری عمومی، 7(22): 19-37.
گل‌خندان، ابوالقاسم. (1397الف). تأثیر دموکراسی بر هزینه‌های نظامی در کشورهای اسلامی: رهیافت اقتصادسنجی فضایی. اقتصاد کاربردی، شماره 26: 61-49.
گل‌خندان، ابوالقاسم. (1397ب). برآورد تابع تقاضای پویای مخارج دفاعی کشورهای خاورمیانه به‌‌روش SGMM. فصلنامه سیاست‌های راهبردی و کلان، 7(26): 186-207.
گل‌خندان، ابوالقاسم. (1398). گزیده‌ای از موضوعات در علم اقتصاد دفاع (تقرب تجربی) جلد اول: رقابت تسلیحاتی و عوامل تعیین‌کننده مخارج دفاعی، تهران، انتشارات نارون دانش.
گل‌خندان، ابوالقاسم و علیزاده، محمد. (1397). برآورد تقاضای غیرخطی بار دفاعی و کشش درآمدی آن در ایران با توجه به سطح تهدیدات بین‌المللی. سیاست‌گذاری پیشرفت اقتصادی، شماره 1: 150-132.
مرادخانی، نرگس؛ دین‌محمدی، مصطفی و تائبی، محمد. (1398). عوامل تعیین‌کننده مخارج دفاعی در ایران. تحلیل‌های اقتصادی توسعه ایران، 7(1): 283-298.
مهدوی، هوشمند و عادلی، امیدعلی. (1399). برآورد تابع تقاضا برای هزینه‌های نظامی در کشورهای حاشیه خلیج فارس: رویکرد ایستا و پویا. مطالعات بین‌‌رشته‌ای دانش راهبردی، 10(38): 285-302.
Ali, H. & Abdellatif, O. (2013). Military Expenditures and Natural Resources: Evidence from Rentier States in the Middle East and North Africa. Defense and Peace Economics. Available at: http://dx.doi.org/10.1080/10242694.2013.848574.
Al-Mawali, M. (2015). Do Natural Resources of Renter States Promote Military Expenditures? Evidence from GCC Countries. Journal of Economic & Financial Studies, 3(3), 49-53.
Ball, N. (1988). Security and Economy in the Third World. Princeton, NJ: Princeton University Press.
Bitzinger, R. A., & Lin, C. P. (1994). The Defense Budget of the People’s Republic of China, Report, Defense Budget Project. Washington, DC.
Brauner, J. (2015). Military Spending and Democracy. Defense and Peace Economics, 26(4), 409-423.
Brzoska, M. (1995). World Military Expenditures. In Handbook of Defense Economics. Vol. 1, edited by T. Sandler and K. Hartley, 45–67. Amsterdam: Elsevier.
Brzoska, M. (2004). The Economics of Arms Imports after the End of the Cold War. Defence and Peace Economics, 15(2), 111–123.
Chiou, J. S., Wu, P. S. & Huang, B. Y. (2011). How Derivative Trading Among Banks Impacts SME Lending. Interdisciplinary Journal of Research in Business, 1(4), 1-11.
Colletaz, G. & Hurlin, C. (2006). Threshold Effects of the Public Capital Productivity: An International Panel Smooth Transition Approach. Working Paper, 1/2006, LEO, Université d'Orléans, 1-39.
Craft, C., & Smaldone, J. P. (2002). The Arms Trade and the Incidence of Political Violence in Sub-Saharan Africa, 1967–97. Journal of Peace Research, 39(6), 693-710.
Douch, M., & Solomon, B. (2014). Middle Powers and the Demand for Military Expenditures. Defence and Peace Economics, 25(6), 605-618.
Dunne, P. & Nikolaidou, E. (2001). Military Expenditure and Economic Growth: A Demand and Supply Model for Greece, 1960–1996. Defense and Peace Economics, 12(1), 4768.
Dunne, J. P. & Perlo-Freeman, S. (2003). The Demand for Military Spending in Developing Countries. International Review of Applied Economics, 17(1), 23-48.
Dunne, P., Perlo Freeman, S. & Smith, R. (2008). The Demand for Military Expenditure in Developing Countries: Hostility versus Capability. Defence and Peace Economics, 19(4), 293-302.
Gonzalez, A., Terasvirta, T. & Van Dijk, D. (2005). Panel Smooth Transition Regression Models. SEE/EFI Working Paper Series in Economics and Finance, 604, 1-33.
Gupta, S., L. Leruth, L. d. Mello, & Chakravarti, S. (2001). Transition Economies: How Appropriate is the Size and Scope of Government?” IMF Working Paper, 01/55. Washington: International Monetary Fund.
Hertley, K. & Sandler, T. (1995). The Economics of Defense. Cambridge surveys of Economic Literature, Cambridge University Press.
Im, K. S., Pesaran, M. H. & Shin, Y. (2003). Testing for Unit Roots in Heterogeneous Panels. Journal of Econometrics, 115, 53-74.
Kadilli, A., & Markov, N. (2011). A Panel Smooth Transition Regression Model for the Determinants of Credibility in the ECB and the Recent Financial Crisis. Working Papers, University of Geneva, 11092, 1-40.
Levine, P., Sen, S., & Smith, R. (1994). A model of the international arms market. Defence and Peace Economics, 5(1), 1-18.
Olimat, M. (2015). China and the Middle East: From Silk Road to Arab Spring. 1st ed. New York: Routledge.
Pamp, O. & Thurner, P. W. (2017). Trading Arms and the Demand for Military Expenditures. Empirical Explorations Using New SIPRI-Data. Defence and Peace Economics, 28(4), 457-472.
Pamp, O., Dendorfer, F. & Thurner, P. W. (2019). Arm your friends and save on defense? The impact of arms exports on military expenditures. Public Choice, 177, 165-187.
Perlo-Freeman, S. & Brauner, J. (2012). Natural Resources and Military Expenditure: The Case of Algeria. The Economics of Peace and Security Journal, 7(1), 15-21.
Rosh, R.M. (1988). Third World Militarization: Security Webs and the States They Ensnare. Journal of Conflict Resolution, 32(4), 671–698.
Smith, R. P. (1980). The Demand for Military Expenditure. The Economic Journal, 90(360), 811–820.
Smith, R. P. (1995). The Demand for Military Expenditure. In Handbook of Defense Economics. Vol. 1, edited by T. Sandler and Hartley, 69–87. Amsterdam: Elsevier.
Thurner, P. W., S. Cranmer, C. Schmid, & Kauermann. G. (2016). The Network of Major Conventional Weapons Transfers 1950-2013, Manuscript. Ludwig-Maximilians-Universität München. Munich.
Tsai, M. Y. (2003). From Adversaries to Partners? Chinese and Russian Military Cooperation after the Cold War, Perspectives on the Twentieth Century. Westport, CT: Praeger.
Wintrobe, R. (2001). How to Understand, and Deal with Dictatorship: An Economist's View. Economics of Governance, 2, 35-58.
new economy and trad
Volume 17, Issue 4 - Serial Number 57
January 2023
Pages 107-142

Files

History

  • Receive Date: 16 September 2022
  • Revise Date: 17 December 2022
  • Accept Date: 21 December 2022

Share

How to cite

Statistics