Defence Spending, Institutional Environment and Economic Growth: Case of NATO

Abstract

This paper analyses the impact of participating in a military alliance on the nexus between defence spending and economic growth. In particular, we study how the process of gradual association to a military organization influences the defence spending of newcomers, and consequently their economic growth. Conclusions from the theoretical model are tested empirically for countries in the North Atlantic Treaty Organization. Results show that the prospect of intensified military alliance partnership and membership has a positive effect on economic growth. In addition, increased security and stability gained by closer military cooperation reinforces the positive link with economic growth. Empirical evidence supports theoretical priors.