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Democracy’s third wave and national defense spending

Johannes Blum ()
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Johannes Blum: Ifo Institute, Ifo Center for Public Finance and Political Economy

Public Choice, 2021, vol. 189, issue 1, No 10, 183-212

Abstract: Abstract I investigate how the third wave of democracy influenced national defense spending by reference to a panel of 110 countries over the 1972–2013 period. I apply new data from the Stockholm International Peace Research Institute on military expenditures, which has been extended to years prior to 1988, and four democracy measures to address differences among indices of democracy. The results from a dynamic panel data model suggest that democracy’s third wave reduced defense spending relative to GDP by about 10% within countries that experienced democratization. I exploit the regional diffusion of democracy in the context of the third wave of democratization as an instrumental variable (IV) for democracy in order to overcome endogeneity problems. The IV estimates indicate that democracy reduced national defense spending relative to GDP by about 20% within countries that experienced democratization, demonstrating that OLS underestimates the effect of democracy on national defense spending. The cumulative long-run effect of democratization resulting from the dynamics in defense spending is almost three times larger for both OLS and IV estimates.

Keywords: Defense spending; Democracy; Instrumental variable; Panel data (search for similar items in EconPapers)
JEL-codes: C23 C26 D72 H41 H56 (search for similar items in EconPapers)
Date: 2021
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DOI: 10.1007/s11127-020-00870-x

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