Arms racing in 'space': Spatial modelling of military spending around the world

This paper builds on previous research into determinants of military spending by examining global and local spatial effects. Other research has examined the effects of regional differences and neighbours' spending levels with standard econometric techniques. This paper uses spatial econometrics to gain a better understanding of the influence of location and distance on levels of defence spending. I find that a spatial lag specification provides much more robust evidence of arms racing and security dilemma dynamics than previous studies. These basic dynamics have been difficult to detect empirically without the context and nuance introduced by spatial modelling. The paper represents a first cut at the topic, but two specific findings emerge. First, globally there is positive spatial correlation (nearby states have similar levels of spending). This conforms to arms racing and security dilemma expectations. And, second, locally there is variation in the patterns of spatial clustering across broad international regions (e.g. Europe, Asia etc.). The second finding supports previous research suggesting important qualitative regional variation in patterns of defence spending and international conflict. The models also confirm the effects of political regime type and interstate war on defence spending, and are robust to the inclusion of a temporally lagged dependent variable.