The whole is not the sum of its parts: demand for defense spending in the EU and NATO

What drives demand for defense spending and, especially, different types of defense spending? While a large body of literature addresses the determinants of countries’ defense spending, only recently have scholars begun analyzing the determinants of disaggregated defense budgets, focusing on equipment, personnel, infrastructure, and operating and maintenance (O&M). Using a purpose-built unbalanced panel dataset covering 35 NATO and EU countries over 10–30 years (1993–2023), we find significant heterogeneity in the drivers of defense expenditure across countries, over time, and among spending categories. Domestic political economy factors, including GDP growth and unemployment, emerge as more consistent drivers of spending components than traditional strategic threat variables or alliance dynamics. These findings refine existing models of defense demand by showing that domestic political economy variables are more consistently associated with disaggregated defense spending components than strategic variables. This pattern is robust across alternative specifications using both expenditure shares and real USD spending levels. The results have important policy implications as European countries recapitalize their militaries and replenish munitions depleted by the Russo-Ukrainian war, highlighting the domestic political economy constraints on defense investment.Footnote1