Two crises, split reactions: NATO’s military spending dynamics

What explains differences in military expenditures and their composition is a question of great importance and current relevance. We explore the extent to which external security shocks drive these military expenditures and their composition in NATO countries. To this end, we utilize the unexpected events of Russia’s annexation of Crimea in 2014 and its invasion of Ukraine in 2022 to evaluate how these shocks to external security affected military expenditures and their composition across NATO countries in a synthetic control setting. We find that NATO members with land borders to Russia or Ukraine increased spending more than NATO members without land borders after the first shock. After the first shock, the increase in overall military spending as a share of gross domestic product was mainly driven by higher equipment expenditures. After the second shock, NATO members with and without a land border to Russia or Ukraine increased spending alike.