Shock and awe: Economic sanctions and relative military spending

Abstract

Economic sanctions could cause substantial harm to target states, forcing them to undertake tough guns-versus-butter trade-offs. Although existing research has argued that sanctioned countries reduce their military spending in absolute terms, it is unclear whether they do trade more guns for butter in relative terms. We argue that in the short run, sanctioned states have an incentive to channel proportionally more resources to the military for two primary reasons. First, this allows them to signal their resolve not to back down to sanctioning states and potentially maintain their bargaining leverage. Second, higher relative military spending can strengthen leaders’ hold on power by improving their ability to co-opt and repress political opponents. However, this combined incentive to signal resolve and consolidate power weakens after the initial economic and political shocks. As such, we also expect that the increase in relative military spending will diminish gradually. To test our theory, we propose a new measurement of sanction shocks that carefully accounts for the salience, costs, and duration of different sanction episodes. Using this measure, we apply dynamic panel modeling to examine the military spending of 166 countries from 1962 to 2015. We find strong support for our theoretical expectations. In response to sanction shocks, target states choose to spend proportionally more on the military; this increase peaks in the first few years and dissipates over time. These results hold important implications for research on both economic sanctions and military spending.