Defence spending and the stability of a country

Defence spending is rising across Europe, and I guess that the War in Iran will lead to more defence spending in that region as well. An interesting question to ponder is whether rising defence spending could destabilise a country. After all, there are many examples of middle- and low-income countries where the military has overthrown a civilian government after becoming strong enough to do so.

Rajeev Goel and Michael Nelson analysed more than 150 countries and the relationship between military spending increases and the threat of military coups and insurrection. Their analysis shows that, yes, on average, rising military spending in a country correlates with a higher risk of fragility and political instability. Unfortunately, they don’t split their sample between developed and emerging markets. Still, they do split their data into different subperiods and compare the impact of rising military spending with other factors, such as being a democracy or the level of corruption in a country.

The chart below shows that higher military spending is correlated with higher fragility, but that correlation has declined in recent years. Since the pandemic, the link between higher military spending and a country’s fragility has virtually disappeared. In my view, this may reflect the fact that since the pandemic, developed countries in Europe have started to increase their defence spending, and as the chart shows, being a democracy is a key factor that reduces the possibility of a military coup, etc. (see here for a broader explanation of the mechanism at play).

But no matter whether the link between military spending and a country’s fragility is correlation or causation, the true message is that its influence pales in comparison to corruption. When corruption is allowed to take hold of a country’s political class, the country overall becomes more fragile and susceptible to civil strife and military coups.

Influence of military spending, corruption and being a democracy on a country’s fragility