10. Military expenditure

Summary

World military expenditure, which has been increasing since 1998, accelerated sharply in 2002—increasing by 6% in real terms to $794 billion in current prices. It accounted for 2.5% of world GDP and was $128 per capita. The current level of world military expenditure is 14% higher in real terms than it was at the post-cold war low of 1998, but is still 16% below its 1988 level, when world military expenditure was close to its cold war peak.

The increase in 2002 is dominated by a 10% real terms increase by the USA, accounting for almost three-quarters of the global increase, in response to the events of 11 September 2001. Further substantial increases are planned up to 2009. Furthermore, the budgets for fiscal years (FYs) 2003 and 2004 do not include the cost of the war in Iraq. A stated goal of the increased spending is to pursue the ‘transformation’ of US armed forces to better meet the challenges of 21st century warfare. This has been questioned, however, given the continuation of a large number of ‘legacy’ systems designed during the cold war.

The USA now accounts for 43% of world military expenditure, when currencies are converted at market exchange rates, as is the SIPRI practice in this Yearbook. The top five spenders—the USA, Japan, the UK, France and China—account for 62% of total world military expenditure and the top 15 account for 82%. These rankings depend strongly on the choice of exchange rate for conversion to US dollars.

Market exchange rates tend to undervalue the actual purchasing power of money in developing countries and economies in transition. When military expenditures are compared using purchasing power parity (PPP) rates, which reflect the actual volume of goods and services that can be purchased in each country with its currency, the USA remains the top spender but China, India and Russia become numbers two, three and four, respectively. SIPRI has chosen to use market exchange rates because of the lack of reliable PPP data for all countries and a need to apply a consistent methodology for currency conversion.

There are marked regional disparities in the share of economic resources devoted to military expenditure. In 2001, the most recent year for which data are available, the Middle East spent an estimated 6.3% of gross domestic product on the military compared to a global average of 2.3%, while Latin America spent only 1.3%. Africa, Asia (including Oceania) and Western Europe also spent less than the world average (2.1%, 1.6% and 1.9%, respectively), while North America, at 3%, and Central and Eastern Europe, at 2.7%, spent somewhat more.

While the war on terrorism is a major factor in the increase in US military expenditure, this has not been the case elsewhere—except in a handful of countries. In particular, military expenditure in Western Europe remained flat in 2002. On the other hand, the UK and France have announced increases from 2003, some of this linked to developing ‘network-centric’ warfare, which is seen as important in the war on terrorism. However, these increases are not matched by most other countries in the region.

Other major powers increased military expenditure in 2002 for differing reasons. Russia’s 12% real terms increase in military spending relates mainly to efforts at military reform and the maintenance of technological capability in Russian industry. China increased military spending by 18% in real terms in 2002, also in pursuit of military reform and modernization.

In the Balkans, some countries appear to be reducing military spending as the region gradually returns to normality, while prospective NATO members in Central and Eastern Europe have been increasing military spending in pursuit of their candidacies and to promote NATO interoperability. In the Middle East most countries made only modest increases in military spending in deference to public opinion, which was against further increases in spite of tension in the region over Iraq. However, escalation in the Israeli–Palestinian conflict drove up Israeli spending. African military spending rose slightly, with armed forces modernization tending to become a more important driver than conflict in most cases. In South Asia, continued regional political rivalry and armed conflict between India and Pakistan pushed up military spending, reinforced by Pakistan’s role in the US-led war on terrorism

Appendix 10A. Tables of military expenditure

PETTER STÅLENHEIM, OLAWALE ISMAIL, EVAMARIA LOOSE-WEINTRAUB, WUYI OMITOOGUN, SAM-PERLO-FREEMAN AND ELISABETH SKÖNS

Full text Appendix 10A [PDF].

Appendix 10B. NATO military expenditure, by category

PETTER STÅLENHEIM

Full text Appendix 10B [PDF].

Appendix 10C. Sources and methods for military expenditure data

ELISABETH SKÖNS AND PETTER STÅLENHEIM

Full text Appendix 10C [PDF].

Elisabeth Sköns (Sweden) is the Leader of the SIPRI Military Expenditure and Arms Production Project. She is the author of chapters on the economics of arms production and the internationalization of arms production for the SIPRI volume Arms Industry Limited (1993) and other publications. She is also the author of chapters on military expenditure and their determinants and economic impact, including a chapter in New Millennium, New Perspectives: The United Nations, Security and Governance (UN University, 2000). She has contributed to most editions of the SIPRI Yearbook since 1983.

Wuyi Omitoogun (Nigeria) is a Researcher on the SIPRI Military Expenditure and Arms Production Project. He is the coordinator of a new project on the Defence Budgeting Process in Africa. He is the author of ‘Arms control and conflict in Africa’ in Arms Control and Disarmament: A New Conceptual Approach (UN Department for Disarmament Affairs, 2000) and the forthcoming SIPRI Research Report no. 17, Military Expenditure of African States—A Survey.

Dr Sam Perlo-Freeman (United Kingdom) joined the SIPRI Military Expenditure and Arms Production Project in November 2002, as a Research Assistant responsible for Latin America and Europe. He recently completed a PhD in Defence and Peace Economics at Middlesex University on ‘The demand for military spending in developing countries’. He is the co-author of a paper of the same title in International Review of Applied Economics, and is a contributor to the forthcoming SIPRI Policy Paper, Armaments and Disarmament in the Caucasus and Central Asia.

Petter Stålenheim (Sweden) is a Researcher on the SIPRI Military Expenditure and Arms Production Project. He is responsible for data on military expenditure in Asia and Oceania and for the maintenance of the SIPRI Military Expenditure Database. He has contributed to the SIPRI Yearbook since 1998.

Olawale Ismail (Nigeria) worked as a Research Assistant with the SIPRI Military Expenditure and Arms Production Project. He is currently a Fellow of the US-based Social Science Research Council (SSRC) program ‘African Youth in a Global Age’. Previously, he worked as a Research Associate at the Centre for Development and Conflict Management Studies in Nigeria. He has an MPhil in International Relations from Cambridge University. His publications include ‘Liberia’s child combatants: paying the price of neglect’ in the Journal of Conflict, Security and Development (February 2002) and ‘Revisiting the methodological debate in international relations: the unfulfiled aspirations of post-positivism’ in the Quarterly Journal of Administration, Nigeria (fall 2002). 

Evamaria Loose-Weintraub (Germany) worked as a Research Assistant on the SIPRI Military Expenditure and Arms Production Project. She was responsible for data on military expenditure in Europe and Central and South America. She is the author of chapters in the SIPRI volume Arms Export Regulations (1991) and co-author of a chapter in SIPRI Research Report no. 7, The Future of Defence Industries in Central and Eastern Europe (1994) and of ‘Overview of world military expenditure’ in Knowledge for Sustainable Development—an insight into the Encyclopedia of Life Support Systems (UNESCO, 2003). She has contributed to most editions of the SIPRI Yearbook since 1984. From January 2003 she is SIPRI’s Public Affairs Coordinator.