Military Spending and Economic Stability in BRICS+ and G7 Countries

Abstract

This paper investigates the economic and geopolitical implications of military spending across two major global blocs: BRICS+ and the G7. While G7 countries exhibit stable, institutionally anchored defense budgets, BRICS+ nations have recently experienced a rapid increase in military expenditures per GDP, driven by economic growth, trade surpluses, and aspirations for greater global influence. Using advanced panel econometric methods, including Two-Stage Least Squares (2SLS), Cross-Sectionally Augmented ARDL (CS-ARDL), and Pooled Mean Group (PMG) estimators, the study analyzes the macroeconomic drivers of military spending, fiscal trade-offs, and strategic consequences in both blocs. Results show that GDP is the dominant and most consistent determinant of defense spending. G7 countries display strong long-run elasticity but low short-run responsiveness, potentially reflecting institutional inertia. In contrast, BRICS+ defense budgets are more responsive to economic and fiscal fluctuations yet show weaker long-run stability. Inflation, fiscal balance, and external accounts exhibit heterogeneous effects. The findings reveal how developmental stages influence the balance between military ambitions and economic priorities.

Keywords

• G7
• BRICS
• military spending
• panel data

BRICS+ ve G7 Ülkelerinde Askeri Harcamalar ve Ekonomik İstikrar

Abstract

Bu çalışma, BRICS+ ve G7 olmak üzere iki büyük küresel blokta askeri harcamaların ekonomik ve jeopolitik etkilerini incelemektedir. G7 ülkeleri kurumsal olarak yerleşik ve istikrarlı savunma bütçelerine sahipken, BRICS+ ülkeleri son yıllarda ekonomik büyüme, dış ticaret fazlaları ve küresel ölçekte artan nüfuz arayışları doğrultusunda GSYH’ye oranla hızla artan askeri harcamalar sergilemektedir. Çalışma, askeri harcamaların makroekonomik belirleyicilerini ve dinamiklerini ve jeopolitik sonuçlarını gelişmiş ve yükselen ekonomiler bağlamında karşılaştırmalı olarak analiz etmektedir. İleri düzey panel ekonometrik yöntemler (2SLS, CS-ARDL ve PMG tahmincileri) kullanılarak yapılan analizler, GSYH’nin askeri harcamaların en güçlü ve tutarlı belirleyicisi olduğunu göstermektedir. Ampirik sonuçlar değerlendirildiğinde, G7 ülkelerinde uzun dönem esneklik yüksek, kısa dönem tepkisellik ise düşüktür; bu durum kurumsal ataleti yansıtabilmektedir. BRICS+ ülkelerinde ise savunma bütçeleri ekonomik ve mali dalgalanmalara daha duyarlıdır, ancak uzun vadede savunma bütçeleri daha kırılgandır. Enflasyon, bütçe dengesi ve dış denge gibi faktörlerin etkisi bloklar arasında farklılık göstermektedir. Bulgular, kalkınma aşamalarının savunma-ekonomi dengesine etkisini ortaya koymaktadır.

Keywords

• G7
• BRICS
• askeri harcamalar
• panel veri

References

1. growth. Journal of International Trade & Economic Development, 15(2), 129-155. Ali, H. E. (2007). Military Expenditure and inequality: Empirical Evidence from Global Data. Defence and Peace Economics 18(6): 519–535.
2. Bachtiar, M., Ahmad, I., Sahabuddin, Z. A., and Trismadi, T. (2025). A comprehensive meta-analysis of determinants influencing military expenditure: New methodological insights and implications for defence budget allocation. Statistics, Politics and Policy, 16(1), 87–103.
3. Benoit, E. (1978). Growth and defense in developing countries. Economic Development and Cultural Change, 26(2), 271-280.
4. Bueno de Mesquita, B., Smith, A., Siverson, R. M., and Morrow, J. D. (2003). The Logic of Political Survival. MIT Press.
5. Caldara, D., and Iacoviello, M. (2018). Measuring Geopolitical Risk. International Finance Discussion Papers 1222. Board of Governors of the Federal Reserve System.
6. Chary, S., and Singh, N. (2024). On the role of military spending: an economic thought perspective. Cogent Social Sciences, 10(1).
7. Cheung, T. M. (2011). Forging China’s military might: A new framework for assessing innovation. Baltimore, MD: Johns Hopkins University Press.
8. Chudik, A., Mohaddes, K., Pesaran, M. H., and Raissi, M. (2016). Long-run effects in large heterogeneous panel data models with cross-sectionally correlated errors. Advances in Econometrics, 36, 85–135.

9. Collier, P., and Hoeffler, A. (2007). Military expenditure in post-conflict societies. Economics of Governance, 8(1), 89-107.
10. Cuaresma, J. C., and Reitschuler, G. (2006). ‘Guns or Butter?’revisited: robustness and nonlinearity issues in the defense–growth nexus. Scottish Journal of Political economy, 53(4), 523-541.
11. Deger, S., and Smith, R. (1983). Military expenditure and growth in less developed countries. Journal of Conflict Resolution, 27(2), 335-353.
12. Dunne, J. P., and Uye, M. (2009). Military spending and development. The Economics of Peace and Security Journal, 4(1), 5-13.
13. Dunne, J. Paul, and Tian, N. (2015). Military Expenditure and Economic Growth: A Survey. The Economics of Peace and Security Journal 10(1): 5–11.
14. Economidou, C., Karamanis, D., Kechrinioti, A., Konstantakis, K. N., and Michaelides, P. G. (2024). Unpacking the dynamics of military spending in a globalized world: economic impacts with a network GVAR model. Journal of Economic Studies, 51(3), 501-527.
15. Gates, R. M. (2010). Duty: Memoirs of a secretary at war. New York, NY: Alfred A. Knopf. Gold, D., and Adams, G. (1990). Defence spending and the American Economy. Defence Economics, 1(4): 275–293.
16. Gupta, S., Clements, B., Baldacci, E., and Mulas-Granados, C. (2005). Fiscal policy, expenditure composition, and growth in low-income countries. Journal of International Money and Finance, 24(3), 441-463.
17. Hemming, R., Kell, M. and Mahfouz, S. (2002). The Effectiveness of Fiscal Policy in Stimulating Economic Activity: A Review of the Literature. (IMF Working Paper 2002/208). International Monetary Fund.
18. Jervis, R. (1978). Cooperation under the security dilemma. World Politics, 30(2), 167-214.
19. Khan, K., Khurshid, A., and Cifuentes-Faura, J. (2025). Impact of Defence expenditure on total factor productivity: new insights from panel bootstrap Granger Causality. Defence and Peace Economics, 36(4), 493-508.
20. Knight, M., Loayza, N. and Villanueva, D. (1996). The Peace Dividend: Military Spending Cuts and Economic Growth. IMF Staff Papers 43(1): 1–37.
21. NATO (2021). Defence expenditure of NATO countries (2014-2021). Retrieved from https://www.nato.int. (Access date: 18.05.2025)
22. Nordhaus, W. D., O’Neal, J. and Russett, B. (2012). The Effect of the International Security Environment on National Military Expenditures: A Multicountry Study. International Organization, 66(3): 491–513.
23. Perkovich, G. (1999). India’s nuclear bomb: The impact on global proliferation. Berkeley, CA: University of California Press.
24. Pesaran, M. H., Shin, Y., and Smith, R. P. (1999). Pooled mean group estimation of dynamic heterogeneous panels. Journal of the American statistical Association, 94(446), 621-634.
25. Pesaran, M. H. (2015). Testing weak cross-sectional dependence in large panels. Econometric reviews, 34(6-10), 1089-1117.
26. Poterba, J. M. (1994). State Responses to Fiscal Crises: The Effects of Budgetary Institutions and Politics. Journal of Political Economy, 102(4): 799–821.
27. Rahman, S. U., Zhao, S., and Junaid, D. (2024). The FDI inflows in low-income and lower-middle-income countries: the moderating role of military expenditure. International Journal of Sustainable Economy, 16(2), 131-153.
28. Ramey, V. A. (2011). Can Government Purchases Stimulate the Economy? Journal of Economic Literature, 49(3): 673–685.
29. Rogoff, K. (1990). Equilibrium Political Budget Cycles. American Economic Review, 80(1): 21–36.
30. Ross, R. S. (2009). China’s naval nationalism: Sources, prospects, and the U.S. response. International Security, 34(2), 46-81.
31. Sakib, N., and Rahman, M. M. (2023). Military in the cabinet and defense spending of civilian governments. International Interactions, 49(3), 315-344.
32. Sibte Ali, M., Maurya, N., Janjua, L.R. (2025). The Complex Nexus of Military Spending, Economic Growth, Energy Consumption and Environmental Sustainability: Insights from India and China. In: Khan, S.A.R., Sheikh, A.A., Kolade, O., Kamble, S. (eds) Circular Economy and Technological Innovation. Industrial Ecology. Springer, Singapore.
33. Sidhu, W. P. S. (2017). India’s military modernization: Challenges and prospects. International Affairs, 93(2), 271-289.
34. SIPRI (2022). SIPRI Yearbook 2022: Armaments, disarmament, and international security. Stockholm, Sweden: Stockholm International Peace Research Institute. (Access date: 19.05.2025)
35. Tran, M. P. B., and Vo, D. H. (2024). Can local and global geopolitical risk predict governments' military spending behaviour? International evidence. Scottish Journal of Political Economy, 71(4), 588-603.
36. Tutuncu, A., Bayraktar, Y., and Khan, K. (2024). Is geopolitical risk a reason or excuse for bigger military expenditures? Peace Economics, Peace Science and Public Policy, 30(4), 455–476.
37. Walsh, B., Isomitdinov, H., and Lee, J. (2024). Military spending and the fear hypothesis. Defence and Peace Economics, December, 1-15.
38. Walt, S. M. (1998). The origins of alliances. Ithaca, NY: Cornell University Press.
39. Yared, P. (2019). Rising Government Debt: Causes and Solutions for a Decades-Old Trend. Journal of Economic Perspectives, 33(2), 115–140.