Journal Issue
Working Paper Summaries (WP/93/1 - WP/93/54)

Summary of WP/93/18: “Military Expenditures 1972-1990: The Reasons Behind the Post-1985 Fall in World Military Spending”

International Monetary Fund
Published Date:
August 1993
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After increasing during the first half of the decade, world military expenditures as a proportion of GDP have fallen steadily since 1985. For the more than 120 countries covered in this study, military expenditures fell from an estimated 5.6 percent of GDP in 1985 to 4.3 percent, a decrease of 23 percent. In industrial countries military expenditures fell to 3.4 percent of GDP in 1990 from 4.4 percent in 1986, and in Eastern Europe and the former Soviet Union (FSU), from 14.6 percent of GDP in 1985 to 13.1 percent. Over the same period military spending in developing countries dropped from 5 percent of GDP to an estimated 3.8 percent. In the different regions, the North African countries decreased military spending to 3.9 percent of GDP in 1990; Middle Eastern countries, to 8.1 percent; the Asian developing countries, to 3.5 percent; Western Hemisphere developing countries, to 2.1 percent; and in sub-Saharan Africa military spending increased slightly to 3.2 percent of GDP.

Empirical findings confirm that financial and economic variables influence military expenditures. Econometric analysis of these determinants suggests several factors that might explain the observed drop in military spending. Military expenditures tended to increase with GDP, population, inflows of external financing (either directly or indirectly through increasing government spending), and to be higher in countries that have a high ratio of central government expenditures to GDP. Small low-income and heavily indebted countries are found to generally spend less. Therefore, the decline in military spending after 1985 can be attributed to the slowdown in economic growth in developing countries throughout the 1980s and to the decrease in economic activity in the industrial countries in the latter part of the decade.

Political factors are also found to have a strong impact on military spending decisions. Democratic countries spend the least. Countries involved in international war spend the most, followed by those engaged in civil war; monarchies, military governments, others (mostly one-party states), and socialist countries follow. The profound political changes of the past half-dozen years would therefore be expected to have a strong effect on military expenditure policies. The changes in Eastern Europe and the FSU are well known. In addition, 8 new democracies emerged between 1983 and 1989, replacing 7 military governments. Since 1990, 15 countries have either fully implemented or made moves toward democratic government. In most of these countries military expenditures relative to GDP fell from 1985 to 1990, due, at least in part, to internal political changes. Other contributing factors are the improved worldwide security environment and the fall in military assistance.

The other important factors are the improved world security environment and a fall in military assistance. For instance, among countries that did not shift political categories, the majority in all groups lowered their expenditures, probably in reaction to these factors.

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