Working Papers
The Determinants of Defense Spending in the Gulf Region: Evidence from Seemingly Unrelated Regressions
No.
1455
Publisher
ERF
Date
January, 2021
Topic
O5. Economywide Country Studies
F5. International Relations, National Security, and International Political Economy
H5. National Government Expenditures and Related Policies
We examine the determinants of demand for military expenditures in the Gulf Region (Saudi Arabia, Iran, Iraq, Kuwait, Bahrain, Qatar, UAE, and Oman) by using a partial adjustment model in a panel setting estimated with the seemingly unrelated regressions (SUR) approach. Our model takes into consideration institutional inertia as well as intercountry correlations, both observed and unobserved. In addition to economic variables, we also consider a series of strategic variables to shed light on issues such as free riding and spill in effects. Our findings based on annual data between 1980 and 2016 indicate that military expenditures are influenced by both economic and strategic factors with a high degree of heterogeneity across different countries. While some countries respond more to economic factors, others exhibit more sensitivity to strategic factors.
Research Fellows
Abdullah Talha Yalta
Professor of Economics, TOBB University of Economics...
Research Fellows
Ayse Yasemin Yalta
Professor, Department of Economics, Hacettepe University, Turkey