Re-examination of the Convergence in Military Expenditures across NATO Countries: Do Different Approximations in Modeling Structural Breaks Matter?

Abstract

The goal of this paper is to investigate whether the ratio of military expenditures to GDP converged across 27 NATO countries for the period 1993-2018 within the scope of stochastic convergence analysis. For this purpose, paying attention to the modeling of structural breaks, the paper employs unit root tests with and without sharp breaks and a unit root test with gradual breaks. The empirical findings imply that using different approximations in modeling structural breaks results in different outputs. The findings indicate weak evidence for the presence of convergence as well. The theoretical and practical implications of these findings are discussed.