Complementarity, free riding, and the military expenditures of NATO allies

Abstract This paper examines the major influences of an ally's demand for military expenditures. Demand equations are estimated for a sample of NATO nations using the iterative, seemingly unrelated regressions technique. Evidence is presented indicating that structural changes occured in these equations in the early 1970s. This instability is the predicted effect of the doctrine of flexible response, adopted by NATO during this time period. The statistical tests show that the medium- sized nuclear powers' military expenditures responded identically to income and defense spillins; the same held true for the lowland allies.

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