DEMOCRACY AND MILITARY EXPENDITURE: EVIDENCE FROM DEVELOPING OIL-RICH COUNTRIES

This study investigates the effects of the level of democracy on the share of military expenditure from oil income in developing oil-rich countries. We use a Generalized Method of Moments (GMM) to estimate our model for 40 developing oil-exporting countries during the period of 1980-2012. To get more robust results, different estimates using 3 different indexes for political institutions including Polity Index, Political Rights Index and the aggregate of Political Rights and Civil Liberties Indexes have been done. The findings show that although oil revenues have directly positive and statistically significant effects on the military expenditure, their indirect interaction with the level of democracy creates a negative and statistically significant effect on the military expenditures in these countries. This implies that while there is a strong tendency to increase military expenditure due to the increases in oil revenues in developing oil exporting countries, improving the quality of political institutions may dampen this effect. Therefore, these countries could replace military expenditures with the social expenditures (including education, healthcare, etc) smoothing the path for upgrading social welfare.