The demand for military expenditure In the neighbourhoods of Russia and China

Recent foreign policy assertiveness by both Russia and China has coincided with defence expenditure increases in several nations in their respective neighbourhoods. However, available data points to increases that outstrip the rate of GDP growth for some of Russia’s neighbours, whereas increases are generally in line with GDP growth for China’s neighbours. Recent econometric estimations of the demand for military expenditure in these two regions (see references) suggest that some of Russia’s neighbours view Russia as a potential threat, whereas it appears that China’s neighbours do not view China as a potential threat, or at least not enough to motivate strong budgetary trade-offs.

The goal with this proposed conference paper is to provide econometric evaluations of competing potential explanations for these differentiated developments, with a particular focus on allies of the United States in each region. Empirical models of the demand for military expenditure shall be evaluated, covering the 2005-2018 period. A first set of estimations will focus on total military expenditure as the dependent variable, with GDP and fiscal variables as explanatory variables for economic conditions. Threat perceptions will be modelled with a range of signalling variables, based on a timeline analysis of major military events in the two regions – notably the annexation of Crimea and fluctuations in tensions in the South China Sea. A second set of estimations will test new candidate variables for the dependent variable, based on a purpose-built index of Military Capabilities Enhancement, based on the framework proposed in Liff (2016). The latter refers to a range of measures that can enhance defence capabilities, and which may not necessarily require large increases in expenditures.