Does NATO Encourage or Constrain Military Expenditure A Panel Analysis of Southeast European Countries in the Process of Euro-Atlantic Integration

Abstract

This study explores the key drivers of military spending in Southeast European nations, with special attention to NATO membership and core economic indicators. Utilizing panel data from 10 countries between 2005 and 2023, the analysis applies a fixed effects regression model with robust standard errors. The empirical results suggest that inflation exerts a statistically significant positive influence on defense budgets. While foreign direct investment and general government expenditure exhibit positive but marginal significance, the variable dMilexp_NATO shows a robust rise in defense spending following NATO accession. Conversely, the dNATO variable, marking formal entry, is associated with reduced military expenditure, pointing toward budgetary discipline during pre-accession phases. These findings provide insights into the phased fiscal impact of NATO integration and offer policy-relevant implications for countries in transitional security and economic environments.