Peter Robertson, 09 October 2021

US military spending is said to be greater than the next 11 countries combined. However, the conventional use of market exchange rates to compare across countries dramatically overstates US spending relative to other countries. This column introduces a military purchasing power parity exchange rate for 59 countries based on the relative unit cost ratio across counties. This ‘military PPP’ shows that the US military budget in 2019 was smaller than that of the next three largest military spenders – China, India, and Russia – combined.

Kerem Cosar, Benjamin Thomas, 04 January 2021

Open oceans are vital for the transport of a large share of world trade. But they are also frequently at the centre of geopolitical tensions between nation states. This column estimates the economic costs of impeded shipping access in South East Asia. The results of the study suggest that restrictions to shipping due to military sanctions could have large negative effects on economic welfare for countries all over the world, including oil exporters such as the United Arab Emirates and Saudi Arabia.

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