Objective: Free riding in arms exports refers to the phenomenon wherein arms-exporting countries can reduce their military spending by exporting arms and military equipment to their allies. This allows them to benefit from the positive security effects created by these countries. The main objective of this article is to analyze the occurrence of free riding in arms exports among NATO countries, which is considered the largest military treaty in the world, during the period from 1995 to 2018.
Methodology: The research method used is descriptive and analytical. The description part utilizes the Document method, while the analysis part relies on econometric concepts. In order to achieve the research purpose, the impact of arms exports between NATO member countries on their military expenditure, along with other influential factors, has been modeled using static panel and dynamic panel models.
Findings: Empirical results using fixed effects (FE) and generalized method of moments (GMM) estimators show that arms exports from NATO member countries to other member countries of this treaty had a significant negative effect on military expenditure. Other results also indicate that other factors affecting the military expenditures of NATO countries are significant and have the expected sign, which confirms the robustness of the results.
Originality: it can be said that exporting weapons to allied military countries not only generates foreign exchange earnings but also reduces military expenditure. This reduction allows for the reallocation of these costs to other sectors that stimulate economic growth through the creation of positive security externalities effects.