Benedict Clements, Sanjeev Gupta, Saida Khamidova, 06 October 2019

Worldwide military spending as a percentage of GDP in the years since the Global Crisis has been at nearly half its level during the Cold War. This column identifies three groups into which spending has been converging. It also shows that external threat levels are a factor in determining military spending, but only in developing economies. The results suggest a significant peace dividend from reducing internal conflicts, with a country that moves from the bottom 25% to the top 25% of developing countries on political stability and the absence of violence/terrorism likely to reduce military spending by about half a percentage point of GDP. 

Peter Robertson, 30 March 2015

The Soviets matched the US only by spending up to 20% of GDP on the military during the Cold War. This column argues that, in stark contrast to this example, China has the potential to match the US in certain military spheres with similar burden on its economy. Using exchange rates comparisons significantly understates the Chinese military spending. A much more realistic assessment is obtained using PPP terms. If both countries spent the same fraction of their GDP on the military, the relative size of China’s military machine would be more than 90% of the US one.


CEPR Policy Research