Economic Determinants of Defense Spending Compliance Among NATO Member Nations, 1949–2026: A Panel Data Analysis

The equitable distribution of collective defense costs has been a defining tension of the North Atlantic Treaty Organization (NATO) since 1949, yet the economic mechanisms that translate a member's fiscal capacity into observed defense effort remain incompletely specified and empirically contested. This dissertation identifies, quantifies, and interprets the economic determinants of defense spending compliance across NATO's full membership from the Alliance's founding through 2026. Grounding the inquiry in alliance economics theory (Olson & Zeckhauser, 1966; Sandler & Hartley, 2001) and recent econometric scholarship (Nikolaidou, 2022; Shimizu & Sandler, 2019; Stauvermann & Kumar, 2021), the study assembles an unbalanced panel of all 32 members—combining official NATO statistics, the SIPRI Military Expenditure Database, the World Bank World Development Indicators, the IMF World Economic Outlook, and the Correlates of War project—yielding up to 1,508 country-year observations. The empirical strategy layers pooled ordinary least squares, static fixed- and random-effects estimators, Arellano-Bond and Blundell-Bond dynamic generalized method of moments (GMM), dynamic fixed effects with Driscoll-Kraay standard errors, spatial-lag models, and a Mundlak probit for the binary compliance outcome. Five hypotheses are tested. Contrary to expectation, higher GDP growth does not raise the within-country defense burden (H1 not supported), a pattern attributable to a denominator effect. Higher public debt significantly constrains defense effort (H2 supported), and trade openness exerts a heterogeneous, sign-contingent influence concentrated among Eastern European members (H3 supported). The determinants shift structurally across the pre-Wales, post-Wales, and post-invasion regimes (H4 supported; Wald χ²(6) = 29.33, p < .001), and proximity to Russia strongly amplifies effort while attenuating fiscal constraints (H5 strongly supported; spatial ρ = 0.750). The study contributes the first unified 1949–2026 econometric account of Alliance compliance, a reusable multi-estimator template for panel inference, and timely evidence on the fiscal sustainability of the 5% Hague Investment Plan.