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Centrality in Trade Networks and Investment in Security

Vincenzo Bove, Leandro Elia and Marco Pelliccia

Abstract

The contemporary empirical literature on military spending has focused on institutional and conflict factors, and although has acknowledged the role of trade openness, it has not taken into account the position of a state in the trade network. Building on the concept of network centrality, we claim that the structure of trade networks affects the optimal investment in security, and that a country’s level of military spending is a function of its strategic position in the global network of a critical commodity, such as oil. Our empirical results show that network centrality constrains military spending.

JEL Classification:: D85; F51; F52

Corresponding author: Vincenzo Bove, Department of Politics and International Studies, University of Warwick, Social Science Building, Coventry CV4 7AL, UK, E-mail:
aThe views expressed are purely those of the author and may not in any circumstances be regarded as stating an official position of the European Commission.

Appendix

Table A1

Panel data fixed effects – before and after the end of cold war.

BeforeAfterBeforeAfter
Per capita GDP0.006**0.0020.007***0.002
(0.003)(0.002)(0.002)(0.002)
Log(population)0.010*–0.0030.011*–0.002
(0.005)(0.005)(0.005)(0.005)
War–0.0000.001**–0.0000.001**
(0.002)(0.001)(0.002)(0.001)
Polity20.000–0.0000.000–0.000
(0.000)(0.000)(0.000)(0.000)
Trade/GDP–0.556*–0.445*–0.552*–0.445*
(0.320)(0.247)(0.318)(0.247)
Defense0.001–0.0000.001–0.000
(0.001)(0.002)(0.001)(0.002)
Emulation29.984*32.192**27.659*32.751**
(15.195)(16.061)(15.427)(16.139)
Degreet–0.067***–0.052*
(0.021)(0.027)
Betweennesst–0.0050.005
(0.003)(0.003)
Country FEYesYesYesYes
Time FEYesYesYesYes
n16199561619956

Dependent variable is the share of military expenditure over GDP. A constant is estimated for all models but not shown. The coefficients and standard errors of GDP per capita and the share of trade over GDP are divided by 10,000, while those ones of the degree centrality measure by 100,000. Ordinary least squares estimates given. Robust standard errors (in parentheses) allow for arbitrary correlation of residuals within each country.

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Published Online: 2015-12-9
Published in Print: 2016-1-1

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