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El Ecuador Nato Analysis Essay

Research Article

Military Expenditure Trends for 1960–2014 and What They Reveal

Authors

  • Todd Sandler,

  • Justin George


Abstract

The article uses newly available consistent military expenditure data for 1960–2014 to examine past and current global spending trends during and after the Cold War. We are particularly interested in the impact of the end of the Cold War, 9/11 and the 2008 recession on military spending worldwide. The global share of military spending of East Asia & Pacific and the Middle East & North Africa increased relative to other regions since 1985. This increase underscores the need for western allies to bolster their power projection capacities. After 1999, both China and Russia raised their real defense spending, with China's increases far exceeding that of Russia. Both countries have a long ways to go to rival US capabilities. The North Atlantic Treaty Organization (NATO) continues to be heavily dependent on US defense spending. The post-1998 expansion allies assume about 2.4 per cent of the alliance's defense burden, while representing significant risks to NATO, given recent Russian actions in the Ukraine.

Policy Implications

  • The recent relative growth of military expenditure in the Middle East & North Africa and East Asia & Pacific underscores the need for western allies to bolster their air and sea-based power projection. These regional changes also augment the required size of rapid deployment forces. Except for the US, France and the UK, western allies have not responded to these needs.
  • NATO must foster greater links with East Asia & Pacific countries, given altering defense and economic activities in the region.
  • Despite US Secretary of Defense Robert Gates’ call on NATO to redress its increasing reliance on the US, his concerns are even truer today than when delivered in 2011. Recent recovery in Europe from the 2008 recession provides an opportunity to address this imbalance.
  • NATO's post-1998 expansion presents many risks to the alliance, especially because the expansion allies only account for 2.4 per cent of NATO's aggregate military expenditure in 2014. Russian aggression in Ukraine and elsewhere underscores these risks.
  • Given recent defense buildups in China and Russia, the US and its NATO partners must consider reversing their recent military expenditure cutbacks. Fortunately, China and Russia have a long ways to go to challenge US military might.

The Stockholm International Peace Research Institute (SIPRI) recently extended its military expenditure database to provide consistently constructed spending estimates across countries for 1960–2014 (SIPRI, 2015) and made these estimates available to a select group of scholars. Up until now, SIPRI's consistent military expenditure figures were only available back to 1988, thus excluding most of the Cold War years. Comparing military expenditure may offer insights on how momentous world events (e.g., the end of the Cold War in 1991, North Atlantic Treaty Organization (NATO) expansion in 1999, the unprecedented terrorist attack on 11 September 2001 (henceforth, 9/11), or the great recession of 2008) affected the trends, regional distribution and burdens of military expenditure worldwide.

The purpose of the current study is to employ these new expenditure data to assess and characterize changing defense patterns, trends and burdens, beginning with the global rise of total military expenditure since 1960, and the post-Cold War fall in the median share of GDP devoted to defense. For 1960–2014, the paper displays contrasting regional military expenditure patterns in terms of global shares for seven distinct regions. Of particular interest is the marked change in regional shares – i.e., the rising shares of East Asia & Pacific and the Middle East & North Africa and the recent falling shares of North America and Europe & Central Asia. These changing patterns have policy implications, later identified, for defense spending and force structure among western allies. In addition, the new data allow for an assessment of NATO burden sharing dating back to 1960, based on two alternative burden-sharing measures (i.e., allies’ shares of total NATO spending and allies’ share of GDP devoted to defense spending). This analysis identifies changes in burden sharing, consistent with the economic theory of alliances (Olson and Zeckhauser, 1966),1 after NATO expanded from 16 to 28 members starting in 1999, with the inclusion of Eastern European countries, many of which belonged to the Warsaw Pact during the Cold War. Additionally, the paper shows how military spending of the US, China, and the Russian Federation (henceforth, Russia) changed after 1992. This change is rather marked in recent years as China takes advantage of its spectacular economic growth and Russia modernizes its armed forces (SIPRI, 2013). Real military spending grew by 45 per cent in the US during 2001–2014, despite decreases since 2010 owing to budget deficit concerns. China and Russia real military expenditure grew by 321 and 168.6 per cent, respectively, during 2001–2014.

Even though global real military spending has grown since 1960, this paper shows that the median share of GDP devoted to military expenditure has fallen since the end of the Cold War in 1991. This then indicates that, on average, countries are allocating more of their income to nondefense spending. However, military expenditure has grown markedly in the Middle East & North Africa and the East Asia & Pacific during recent years. Defense growth in these regions underscores the need for western allies to bolster their power projections capacity to unstable areas beyond Europe, where they have vital economic and security interests. To do so, western allies must reverse a pronounced downward trend in their defense shares of GDP in order to afford more aircraft carriers, large-haul transport planes, tanker aircraft, and long-range bombers. Moreover, enhanced NATO economic and security links are needed with East Asian and Pacific countries as China's dominance in the region grows. The paper also documents a rising degree of free riding by most NATO allies on the US, France, and the UK, consistent with ally defense in out-of-area theaters possessing a great deal of publicness (i.e., nonrival and nonexcludable benefits) (Olson and Zeckhauser, 1966). This means that Germany and many other NATO allies must reassess their falling defense burdens, especially since the 2008 recession. Moreover, US budget sequestration reduced US real military spending since 2010, thereby allowing China and Russia to play defense catch-up with the US. Fortunately, our analysis shows that China and Russia have a long ways to go to challenge US superior defense capabilities.

The remainder of the article contains six sections. The next section presents preliminaries that identify our regional and sample compositions. This section primarily focuses on what constitutes military expenditure and the various ways it can be represented. Total military expenditure for 1960–2014 is then reviewed, followed by the presentation of regional trends. Next, NATO defense spending and burden sharing are investigated. The next-to-last section compares the US, China, and Russia real defense spending since 1992, while the final section contains concluding remarks.

Preliminaries

The extended SIPRI (2015) military expenditure data apply a consistent definition as to what constitutes defense spending to generate comparable estimates for most countries back to 1960. SIPRI rely, in large part, on governments’ official military expenditure data to generate country-level spending amounts from defense budget categories. SIPRI's definition of military expenditure includes outlays on armed forces (inclusive of peacekeeping troops), expense of defense ministries, cost of defense-related government agencies, spending on paramilitary forces, and cost of military-associated space activities (e.g., military surveillance satellites) (SIPRI, 2013, p. 200). In a given fiscal year, both current and capital spending on military-sector civilian personnel, military procurement, operations and maintenance, and military R&D are included by SIPRI (2013, 2014) in its calculation. When constructing its consistent estimates, SIPRI augments official figures with information gleaned from its network of informed parties and open sources. If the same set of categories did not comprise each country's military expenditure calculation, then cross-country comparisons would be misleading.

SIPRI (2013, p. 173) rightfully cautions that military expenditure is a resource input measure that does not necessarily reflect military output. Such output can differ among countries for identical expenditure levels because of waste, corruption, training differences, entrepreneurship differences, equipment vintage differences, force structure, deployment considerations, efficiency differences and logistics. For instance, a country that pays more for an all-voluntary force should attract more capable soldiers, who can get more output or security from the same arsenal of weapons. Nonetheless, consistently defined military expenditure estimates can identify defense growth trends, defense spending discontinuities, defense burdens assumed, and changing regional disparities. These expenditure estimates can also discern similar and contrasting responses to momentous events.

For cross-country comparisons over time, military expenditure must be denominated in the same currency in constant value terms. Each country's military expenditure in local currency is converted by SIPRI (2015) to 2011 US dollars by applying market exchange rates and adjusting for inflation. The resulting military expenditure values are then in real terms. In many instances, we present shares – e.g., a region's share of global military expenditure – for comparison purposes. This regional share is the ratio of a region's aggregate military spending to global military spending for a given year, where the numerator and denominator are in constant US dollars. The display of these shares at different regular time intervals permits the reader to see immediately how regional shares are changing over time. In the case of NATO, allies’ shares of total alliance military expenditure indicate an important within-alliance burden-sharing indicator (Sandler and Forbes, 1980).

We use the regional classifications of the World Bank (2015), where the world is partitioned into seven regions. The major countries in each of these seven regions are as follows: China, Japan and Republic of Korea in East Asia & Pacific; France, Germany, Russia and the UK in Europe & Central Asia; Argentina, Brazil, Colombia and Mexico in Latin America & Caribbean; Egypt, Iraq, Iran, Israel, Saudi Arabia and Syria in the Middle East & North Africa; US and Canada in North America; India and Pakistan in South Asia; and Nigeria and South Africa in sub-Saharan Africa. Table 1 lists the sample countries in each of the seven regions. The number of sample countries varies from a high of 48 in Europe & Central Asia to a low of two in North America. Because of data problems, North Korea is not in the sample. Similarly, the Soviet Union is excluded prior to 1992 and China is excluded prior to 1989. These two exclusions occur because SIPRI (2015) had much less confidence in past estimates of these countries’ military spending.2 Countries with little or no military expenditure – e.g., Iceland, Singapore, Hong Kong and some small island countries – are excluded from the sample of 165 countries.

AustraliaFijiLao PDRNew ZealandTaiwan, China
Brunei DarussalamIndonesiaMalaysiaPapua New GuineaThailand
CambodiaJapanMongoliaPhilippinesTimor-Leste
ChinaKorea, Rep.MyanmarSingaporeVietnam
Europe & Central Asia
AlbaniaCzech RepublicIrelandNetherlandsSweden
ArmeniaDenmarkItalyNorwaySwitzerland
AustriaEstoniaKazakhstanPolandTajikistan
AzerbaijanFinlandKyrgyz RepublicPortugalTurkey
BelarusFranceLatviaRomaniaTurkmenistan
BelgiumGeorgiaLithuaniaRussiaUkraine
Bosnia & HerzegovinaGermanyLuxembourgSerbiaUK
BulgariaGreeceMacedoniaSlovakiaUzbekistan
CroatiaHungaryMoldovaSlovenia 
CyprusIcelandMontenegroSpain 
Latin America & Caribbean
ArgentinaColombiaGuatemalaMexicoTrinidad and Tobago
BelizeCubaGuyanaNicaraguaUruguay
BoliviaDominican RepublicHaitiPanamaVenezuela, RB
BrazilEcuadorHondurasParaguay 
ChileEl SalvadorJamaicaPeru 
Middle East & North Africa
AlgeriaIranKuwaitMoroccoSyria
BahrainIraqLebanonOmanTunisia
DjiboutiIsraelLibyaQatarUnited Arab Emirates
Egypt, Arab Rep.JordanMaltaSaudi ArabiaYemen, Rep.
North America
CanadaUS   
South Asia
AfghanistanIndiaNepalPakistanSri Lanka
Bangladesh    
Sub-Saharan Africa
AngolaCongo, Rep.Guinea-BissauMozambiqueSouth Africa
BeninCote d'IvoireKenyaNamibiaSouth Sudan
BotswanaEquatorial GuineaLesothoNigerSudan
Burkina FasoEritreaLiberiaNigeriaSwaziland
BurundiEthiopiaMadagascarRwandaTanzania
Cabo VerdeGabonMalawiSenegalTogo
CameroonGambia, TheMaliSeychellesUganda
Central African Rep.GhanaMauritaniaSierra LeoneZambia
ChadGuineaMauritiusSomaliaZimbabwe
Congo, Dem. Rep.    

Two views of total military expenditures

In Figure 1, total military expenditure in constant 2011 US dollars is plotted for 1960–2014 for the 165 countries. There is an upward trend through 1990 when this expenditure reached 1.221 trillion US dollars. If the Soviet Union had been included, this upward trend would have been more pronounced. Generally, total military expenditure in real terms declined from 1991 until 1998 when it then rose until its peak of 1.739 trillion US dollars in 2011. The small rise in military spending in 1991 and 1992 is due to the Gulf war and the addition of Russia to the sample. In 2014, world military spending was 1.69 trillion US dollars. Military expenditure grew by 57.6 per cent since 2000 in response to the prevalence of intrastate wars,3 the need to address transnational terrorism after 9/11, the necessity to upgrade weapon systems, the threat of failed and rogue states, the Iraq and Afghanistan wars, the rise of China and instability in the Middle East & North Africa.

Figure 1 also shows that the peace dividend, in terms of falling defense spending, following the end of the Cold War was short-lived for the world as a whole, even though some NATO and ex-Warsaw Pact allies are still taking advantage of the dividend, as shown later. The recession of 2008 slowed the rate of increase in global military expenditure. After 2009, the downturn in military expenditure was due, in large part, to the decline in US defense spending as US budget deficit concerns resulted in across-the-board cuts in government spending. In 2012, the US share of global military expenditure fell to less than 40 per cent for the first time since 1960 (SIPRI, 2013).

We now turn to an alternative measure of global military expenditure that consists of the median share of GDP spent by sample countries on military expenditure in each year during 1960–2014. To compute this measure for a given year, we find military expenditure as a share of GDP for each sample country and then identify the median share over all sample countries in each sample year. Unlike an average share, the median share does a better job in treating outliers. This alternative measure indicates how much of the world economy's productive capacity is devoted annually to defense on average. At the country level, this measure captures the country's defense burden normalized by GDP. Countries whose military expenditure shares are greater than other countries are shouldering a large relative defense burden.

In Figure 2, this median share displays a saw-tooth pattern between 1961 and 1981, rising to its highest value of 2.8 per cent in 1981, ten years before the end of the Cold War. This saw-tooth pattern can be attributed to changes in defense policy, periodic crises, new weapon technology and economic factors. During 1982–1990, there is another saw-tooth pattern with the median share of GDP earmarked for defense reaching a local peak of 2.6 per cent in 1990. This peak came during the buildup of coalition forces (e.g., by the US, Kuwait, the UK, Saudi Arabia, France, Italy and Canada) between 2 August 1990 and 17 January 1991 prior to the onset of Desert Storm or the first Gulf war. Because of this war, military expenditure was 13.7 per cent of GDP for the Middle East & North Africa, with Kuwait spending 117.3 per cent of its GDP on defense. In addition, the US and coalition members in Europe also increased their median shares of GDP devoted to defense before and during the Gulf War. After 1990, this median share declined rather steadily from 2.4 per cent in 1991 to 1.4 per cent in 2014. This decline occurred despite the US increasing its defense share of GDP after 9/11 and the post-1992 defense buildups by China and Russia, discussed toward the end of the article. Remember that high defense shares in a few countries will have little impact on the global median share, which is the middle share of 165 sample countries. From a global vantage, this declining post-1990 defense share of GDP suggests an ongoing peace dividend, especially for NATO and ex-Warsaw Pact members, since the end of the Cold War as countries are on average spending less of their GDP on defense, thereby releasing GDP for nondefense (e.g., social welfare or productive) purposes. This alternative measure eliminates the growth in military expenditure arising from the growth in GDP over time, since it is a ratio of two measures.

Figures 1 and 2 highlight how different defense measurements provide different perspectives so that multiple representations of military expenditure should be employed as done here. Figure 1 underscores the general upward spending on global defense since 1960, while Figure 2 indicates that countries are generally allocating less of their GDP to defense since the end of the Cold War. The latter tendency is true except for three major powers (i.e., the US, China and Russia) and countries where tensions are high (e.g., Greece and Turkey).

Regional defense trends

Another useful vantage is to investigate total military expenditure within the seven regions. In Figure 3, military expenditure plots in constant US dollars for each region are presented for 1960–2014. An uneven pattern characterizes North America where US defense spending way overshadows Canadian defense spending. The upturn from 1960 to 1968 reflects the buildup of the US strategic nuclear arsenal and rising Cold War tensions. The downward trend in the 1970s captures US successful efforts to shift more of NATO defense burdens to European allies during the doctrine of flexible response when the alliance would respond in measure to Soviet aggression – e.g., Soviet conventional incursions in Europe would be first met with a conventional response (Sandler and Hartley, 1999; Sandler and Murdoch, 2000).4 This doctrine increased the ally specific component of defense spending because a NATO ally with weaker security forces might have drawn a Soviet attack, thus reducing free riding (Sandler and Murdoch, 2000). During the latter 1970s, the Carter administration reduced defense spending, which reinforced the US downturn. The large rise in military spending in North America in the 1980s is due to the Reagan defense buildup. In the 1990s, there are the peace-dividend years following the Cold War; after 9/11, there is the ‘war on terror’ buildup of defense. Since 2009, US defense spending fell because of budgetary considerations and sequestration.

Europe & Central Asia shows a gradual rise in real military expenditure over the entire sample period. The spike in 1992 comes when Russian military expenditure is added to the data set. Since the late 1990s, Russian defense is driving the trend as most western European countries have been reducing their defense burdens. The steadiest upward trend starting in 1989 characterizes East Asia & Pacific primarily due to the buildup of Chinese military expenditure, which, in turn, encourages defense spending of some possible adversaries (e.g., Japan and Republic of Korea). During 1990–2014, real military expenditure grew by 7.1 per cent in Japan, 119.8 per cent in the Republic of Korea and 143.8 per cent in Vietnam. Also, this expenditure grew by 186 per cent in Indonesia.

There is an upward trend in real military spending in the Middle East & North Africa in recent years. This trend accelerated after 2000 with the increased dominance of the religious fundamentalist terrorists (Enders et al., 2016). This rise was reinforced in recent years by the instabilities in Egypt, Iraq, Lebanon, Libya, Syria and Yemen following the ‘Arab Spring’, which began on 18 December 2010 in Tunisia. During 1990–2014, real military expenditure grew as follows: 1409.6 per cent, Algeria; 108.6 per cent, Morocco; 35 per cent, Egypt; 166.4 per cent, Tunisia; 333.9 per cent, Bahrain; 141.2 per cent, Lebanon; 219.3 per cent, Oman; 197.1 per cent, Saudi Arabia; and 108.1 per cent, Syria. Syrian defense growth is for 1990–2011, since its expenditure is not available for 2012–2014.

The remaining three regions are fairly flat with a small upward trend in Latin America & Caribbean in recent years, fueled by efforts by some governments to curb drug-trafficking violence (e.g., Colombia and Mexico) (SIPRI, 2013, p. 125). The small upward trend in South Asia is due to defense spending increases in Afghanistan, India and Pakistan. There is little change in sub-Saharan Africa.

Figure 3 highlights the post-Cold War regional shift in defense spending to two increasingly unstable regions – Middle East & North Africa and East Asia & Pacific. This regional shift has policy implications for western allies that are indicated after our presentation of Figures 4 and 5.

Our next perspective on regional defense spending is Figure 4, which displays these real expenditures for the seven regions at five-year intervals, except for 2014. This figure allows the reader to see at a glance changing relative patterns over time. The figure documents the dominance of North America, with Europe & Central Asia as the second most important region for 1960–2014 in regards to real military expenditure. The growing importance of Europe & Central Asia after 2000 is due to the Russian defense buildup. The figure also shows the growing defense importance of East Asia & Pacific after 1990 owing to defense increases in China, Indonesia, Japan, Republic of Korea and Vietnam. After 1995, there is a notable defense spending increase in the Middle East & North Africa. Modest increases in Latin America & Caribbean and in South Asia are evident after 1985.

Based on the raw data for real military expenditure, we compute the following defense spending growth rates for 1999–2014: 50.8 per cent, North America; 18.4 per cent, Europe & Central Asia; 120.3 per cent, East Asia & Pacific; 120.2 per cent, Middle East & North Africa; 79.3 per cent, Latin America & Caribbean; 83.1 per cent, South Asia; and 27.4 per cent, sub-Saharan Africa. The greater defense in East Asia & Pacific and in Middle East & North Africa must be put in proper perspective, because both regions started their defense growth from rather modest initial military expenditure levels compared to North America and Europe & Central Asia. Figure 4 puts these initial expenditures in perspective by displaying expenditure amounts. After 1990, defense increases in South Asia are driven by India and Pakistan, whose military spending grew by 165.8 and 75.8 per cent, respectively, during 1990–2014. These increases were due to their nuclear weapon buildup, a war in 1999, heightened tensions during 2001–2003, cross-border terrorism and their mutual distrust (SIPRI, 2014, 2015).

Figure 5 provides yet another perspective of the distribution of regional military expenditure for 1960–2014 at regularly spaced snapshots since 1960. In real terms, this graph depicts each of the seven regional shares of global military expenditure. Each share is found by taking the ratio of a region's total real military spending to the entire sample's real military spending at selected points in time. In 1960, North America and Europe & Central Asia collectively accounted for 93.4 per cent of global military expenditure.5 These two regions’ defense shares fell fairly steadily until they collectively accounted for 59.6 per cent of global military spending in 2014. During 1995–2014, the steady rise of the shares in East Asia & Pacific and the Middle East & North Africa are evident. Figure 5 underscores the shifting regional importance in terms of military expenditure over the last 55 years. The shift is particularly important after the end of the Cold War. Because much of the defense industry is in the US and western Europe, these countries’ defense sector supplied many of the weapons for these defense-expanding regions (Hartley, 2007, 2012; Sandler and Hartley, 1995). In 2011, the world's top defense companies, in descending sales, are Lockheed Martin (US), Boeing (US), BAE Systems (UK), General Dynamics (US), Raytheon (US), Northrop Grumman (US), EADS Airbus (Europe), Finmeccanica (Italy), L-3 Communications (US) and United Technologies (US) (Hartley, 2014, p. 151).

Currently China and Russia are expanding and modernizing their armed forces to extend their territorial control in the South China Sea and the Ukraine, respectively (The Economist, 2015; SIPRI, 2014, 2015). As a rogue state, North Korea jeopardizes western interests in East Asia. Islamic State in Iraq and Syria (ISIS), intrastate conflicts, and failed states (e.g., Libya, Iraq, Syria and Yemen) make the Middle East & North Africa a growing threat to western interests and to stability in the region.

The heightened defense importance of East Asia & Pacific and the Middle East & North Africa underscores the necessity for NATO allies to be able to project their military assets beyond the NATO theater. This then calls for enhanced emphasis on rapid deployment forces. Such shifting regional power patterns also calls for long-range transport and combat aircraft. The US already possesses the required heavy-lift transport aircraft and is beginning development of the long-range strike bomber for distant combat missions. Other western allies are much more limited in their power-projection capabilities, which weaken NATO's ability to conduct out-of-area combat missions (Hartley, 2012). Currently, the US has ten aircraft carriers, France has a single aircraft carrier, and the UK is developing two Queen Elizabeth aircraft carriers (International Institute for Strategic Studies, 2014). The latter two carriers will not be available until 2017 or beyond. Currently, the UK has three ships that are landing platforms for helicopters. The International Institute for Strategic Studies (2014, p. 94) highlighted France's strategic lift inadequacies. In terms of heavy-lift transport planes, tanker planes, and long-range bombers, France's and the UK's assets are very modest compared to the US (International Institute for Strategic Studies, 2014).

Threats in East Asia & Pacific enhance the importance of naval power, leading the US to plan to increase its navy from 273 to at least 300 ships and possibly 350 (The Economist, 2015, p. 65). To address shifting regional patterns of defense spending, there is little doubt that the composition of western armed forces and equipment must undergo a drastic transformation in the near-term at great expense. Recent defense spending trends of NATO allies, displayed in the next section, raise real doubts whether most of these allies are bolstering their armed forces to meet such out-of-area challenges.

The world is at a critical junction in terms of military expenditure policy – namely, the ability to address the growing threats in distant venues. This comes after significant declines in western defense spending in response to the post-Cold War peace dividend, the 2008 recession, the euro crisis and the concomitant budget crises.

NATO alliance and defense spending and burdens

Founded in 1949 by 12 countries (i.e., Belgium, Canada, Denmark, France, Iceland, Italy, Luxembourg, the Netherlands, Norway, Portugal, the UK and the US), NATO took in Greece and Turkey in 1952, West Germany in 1955 and Spain in 1982 (Sandler and Hartley, 1999). Unified Germany replaced West Germany on 3 October 1990. The alliance grew from 16 to 28 allies between March 1999 and April 2009 with the Czech Republic, Hungary and Poland joining in 1999; Bulgaria, Estonia, Latvia, Lithuania, Romania, Slovakia and Slovenia entering in 2004; and Albania and Croatia entering in 2009. With the exception of Slovenia and Croatia (formerly part of nonaligned Yugoslavia), the ‘expansion’ allies had been part of the Warsaw Pact prior to the end of the Cold War. With a more belligerent Russia and its recent land grab in Ukraine, these expansion allies present a greater liability concern to NATO. This concern is more poignant given Putin-inspired nationalism in recent years and defense retrenchment in France, Germany, and many other NATO allies.

The expanded SIPRI (2015) data allow for an examination of burden-sharing concerns and other dilemmas confronting NATO since 1960. Figure 6 displays NATO allies’ shares of total alliance expenditure for 1960–2014. These shares are one important measure of burden sharing by NATO allies at alternative points in time.6 In Figure 6, allies are grouped into four categories – the US, medium powers (France, Germany and the UK), other NATO allies (the other 12 pre-1999 expansion allies), and the 12 expansion allies. The shares for each observation adjust for the number of allies.

Although the US share varies over time, it usually assumes over 60 per cent of the alliance expenditure burden, measured by this metric. Variations in these shares are tied to strategic doctrine, perceived threats, and technological changes (Sandler and Murdoch, 2000; Kollias, 2008).7 For example, the alteration in NATO strategic doctrine from mutual assured destruction (MAD) to flexible response in the latter 1960s resulted in the US shifting some of its NATO defense burden to western Europe during 1970–1980 as conventional forces assumed an enhanced importance in any initial stages of a Soviet incursion in Europe (Sandler and Forbes, 1980; Sandler and Hartley, 2001). This strategic shift made NATO's defense less purely public to the European allies, thereby inducing them to provide more forces to protect their territory. Increased terrorism threats after 9/11 have been shown, in part, to explain the increasing US defense burden share during 2000–2010 because transnational terrorism disproportionately targeted US interests (Sandler and Shimizu, 2014). Technological changes may involve the development of new weapon platforms, such as strategic nuclear arsenals in the 1960s or the development of antiballistic missile defenses in subsequent decades. Except for 2000, the US and the three medium powers accounted for at least 80 per cent of NATO spending; thus, just four allies underwrite most of NATO's defense. This reliance on the four largest allies is consistent with Olson and Zeckhauser's (1966) exploitation hypothesis, in which the rich allies shoulder the defense burden of the alliance when defense primarily consists of pure public good benefits. Figure 6 highlights a shrinking alliancewide burden being shouldered by the three medium powers since 1985, which also applies to the other 12 pre-expansion allies after 2000. As a consequence, US burdens have been very high during 2000–2010.8 The changing pattern of shares in Figure 6 reflects the changing degree of defense publicness as weapon technology, strategic doctrine, alliance size and threats altered with time.

Although the expansion allies carry a slightly increasing spending burden since 2000, they still assumed only 2.4 per cent of NATO military expenditure. This implies that post-1998 NATO expansion has placed a huge liability on relatively few allies – most notably the US – that shoulder much of alliance military spending. Recent increases in defense spending by Lithuania, Latvia, and Estonia will help but constitute relatively little overall increment, given their small initial spending base. Using NATO's spending figures for 2015, Pavgi (2015) showed that the Baltic allies have some of the faster growing defense spending in NATO, with Lithuania leading with 29.5 per cent for 2015. These spending increases are motivated by Russian actions in Ukraine.

To gain an alternative perspective, we turn to a second burden-sharing measure that was first employed by Olson and Zeckhauser (1966). This burden measure is an ally's share of GDP spent on military expenditure. Division of military expenditure by GDP normalizes for the ally's productive capacity, thereby depicting a capacity-conditioned burden indicator (Kollias, 2008; Sandler and Hartley, 2001). Table 2 lists this indicator for NATO allies at seven points in time. Iceland is left out since its share is virtually zero. Since 1960, the median per cent of GDP spent on defense (last row of Table 2) generally declined for NATO allies. Rather marked decreases in this measure followed the end of the Cold War, except for the US. The latter raised its military expenditure share of GDP after 9/11 and its subsequent involvement in Iraq and Afghanistan. This increase reversed around 2010 owing to US budget difficulties – i.e., US Congress actions to reduce the deficit.

Canada4.22.21.82.01.11.21.0
US8.67.75.05.32.94.73.5
Belgium3.42.93.32.41.41.11.0
Denmark2.72.42.42.01.51.41.3
France6.54.13.83.42.52.42.2
Germany4.03.23.12.71.51.41.2
Greece4.94.24.73.83.62.82.2
Italy3.12.32.02.12.01.81.5
Luxembourg1.00.81.20.90.60.60.5
Norway3.23.52.62.91.71.51.4
Portugal3.45.52.72.41.92.11.9
UK6.34.94.73.82.42.52.2
Turkey3.53.33.93.53.72.42.2
Netherlands4.13.13.02.51.51.41.2
Spain   1.81.21.10.9
Czech Republic    2.01.31.0
Hungary    1.51.10.9
Poland    1.81.91.9
Bulgaria     1.91.6
Estonia     1.82.0
Latvia     1.51.3
Lithuania     0.90.8
Romania     1.31.3
Slovak Republic     1.31.0
Slovenia     1.61.0
Albania     1.61.0
Croatia     1.71.5
Median3.83.33.12.51.81.51.3

Table 2 is consistent with a recent theory that military expenditure shares of GDP converge over time for a similar cohort of countries (Arvanitidis et al., 2014; Lau et al., 2015). There is a marked greater degree of similarity among these ratios for NATO allies after 1990.

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