Fiscal Signaling and Defense Spending Interdependence: Pearson and Granger Analysis of Indonesia, Malaysia, and Singapore, 2000–2024

This study examines the interdependence of defense expenditure among Indonesia, Malaysia, and Singapore through the lens of fiscal signaling theory. Previous research focuses mainly on NATO and Middle Eastern arms races. However, empirical evidence for Southeast Asian fiscal signaling remains limited, often restricted to single-country studies. This study analyzes annual SIPRI data from 2000–2024, applying Pearson correlation and Granger causality tests to identify synchronous and temporal relationships in defense spending (% of GDP). Results reveal weak correlations between Indonesia–Malaysia (r = 0.239) and Indonesia–Singapore (r = –0.027), with no significant Granger causality effects at one-year or two-year lags (p > 0.05). Defense budgets remain autonomous across these countries, reflecting domestic priorities and fiscal constraints rather than regional competition. The study contributes to fiscal signaling literature by demonstrating that Southeast Asia's defense budgeting emphasizes fiscal autonomy over arms race dynamics, supporting Musgrave's stabilization function and Fiscal Sustainability Theory. The absence of fiscal signaling suggests that regional stability is preserved through independent, discipline-oriented defense budgeting within ASEAN.