Determinants of Defensive Expenditure in Iran

This study aims to analyze determinants of military expenditure in Iran, using the neoclassical demand model. For this end, the latest available data is used for a period of 47 years ending 2017. This study evaluates the effect of macroeconomic variables such as per capita GDP, oil revenue, non-military expenditure, real exchange rate, democracy level, war and conflict on military expenditure using Autoregressive Distributed Lags (ARDL) method. The results show that the oil revenue and non-military expenditure of government have positive and significant effects, and the per capita GDP variable has a negative effect on military expenditure. Democracy has a positive effect in the short run, and a negative impact on military spending in the long run. The real exchange rate has a negative impact in the short run, and a positive effect on the military expenditure in the long run. In addition, regional war as dummy variable has a positive and significant effect on military expenditure. Accordingly, the factors affecting military spending in Iran are not merely economic. Thus, political, strategic and even geographical conditions should be considered in order to assess the amount of military spending