NATO Defense Expenditure in the Last Decade

IAFF 6502 - DRR Final Project

Author

Luca Janssen

Published

March 6, 2024

Edited on March 12: Sweden joined NATO March 7, 2024. Added information on what is counted towards defense spending. Added clarification in conclusion.

Source: Orissa Post

“They [the NATO member states] are determined to safeguard the freedom, common heritage and civilisation of their peoples, founded on the principles of democracy, individual liberty and the rule of law. They seek to promote stability and well-being in the North Atlantic area.
They are resolved to unite their efforts for collective defence and for the preservation of peace and security. They therefore agree to this North Atlantic Treaty.”

          - Preamble to the Washington Treaty, 1949

Introduction

This year marks the 75th anniversary of the NATO Alliance. Established after the second world war, NATO was created to balance against Russia in Europe. Even though the continued existence of NATO was questioned after the collapse of the Soviet Union in 1991, NATO appears to have entered a new era of relevance after Russia’s full-scale invasion of Ukraine in 2022.

During the 2014 Wales Summit, NATO members pledged to spend spend at least 2 percent of their GDP on defense. This “Defense Investment Pledge” meant to increase defense spending among nations with lower levels of defense expenditure. Last year, during the 2023 Vilnius Summit, member states reaffirmed their commitment to the 2 percent guideline. This year, 18 member states are expected to spend at least 2 percent.1 This is large increase from 2014, when only 3 members met the 2 percent benchmark. It is important to note that this is merely a guideline and not legally binding by any means. NATO is not a supranational organization, meaning that its members retain full sovereignty. As such, all actions NATO, and its members, undertake are by consensus.

What is included in “defense spending”?

National defense budgets are organized for expenditure on three main categories, all of which is counted towards total defense spending.2 This includes:

  1. Personnel expenses (including pensions).
  2. Research, development, and procurement of defense equipment.
  3. Operations, exercises and maintenance.

Within these three categories, members agreed that at least 20% of the total should be spent on procurement of major equipment. This ensures that member states continue to modernize their equipment and maintain interoperability between their militaries. This guideline was also agreed upon in the 2014 Wales Summit and pledged again during the Vilnius Summit in 2023.

Why does NATO want its members to spend 2 percent of GDP?

NATO’s main concern with defense spending is burden sharing.3 The U.S. provides the backbone of security forces and defense spending of the Alliance. The 2 percent guideline is a way to ensure relative equal spending on defense among all member states. This has been a contentious issue, as the U.S. feels that its European Allies rely unfairly on its defense spending assuming the U.S. will come to their aid. While Article V of the Washington Treaty, which established NATO in 1949, would commit the U.S. to aid European Allies in the case of an attack, this is a relatively large burden to bear. This burden is further increased if European members are not investing in their own defense.

Additionally, a more credible defense force increases deterrence. Increased defense spending can make NATO’s deterrence more credible if forces are larger, and NATO members possess specialty capability that could give them an advantage during conflict. For instance, only a select group of NATO member states have forward deployed nuclear weapons with the capability of delivering them.4 The acquisition of specific capabilities is somewhat coordinated through Allied Command Transformation, based in Norfolk, VA.

Having a large military, public displays of power, and shows of unity are all signals meant to deter adversaries from attacking one’s territory. Deterrence depends on two factors, capability and will, that need to be communicated effectively. Capability is the ability to use military force to stop an attack, and will refers to whether the capability would be used. A state must possess both to effectively deter an adversary – one is not sufficient. This produces the following deterrence equation.5

\[ Capability \times Will = Deterrence \]

Deterrence is at the heart of the NATO Alliance, and one of its three self-identified core tasks.6 After all, preventing a conflict is relatively cheaper than fighting one.

Defense expenditure is related to both capability and will. More spending usually increases military capabilities as states modernize their forces, or expand their force sizes. As for will, states spending more on defense, show a willingness to defend their territory. As such, defense spending can serve as a proxy for overall deterrence ability.

Of course, many more factors play into a state’s or alliance’s deterrence capability. Military spending is just one of measure for deterrence that is easily quantifiable. NATO enhances its deterrent capability in many different ways. One such measure is the Enhanced Forward Presences NATO has established on its eastern flank. Each Enhanced Forward Presence has a so-called “Framework Nation” leading the troop presence. They bolster NATO’s deterrence capability by providing member state with a stake in the defense of the Alliance. The idea here is that if an attack were to take place, the troops of many nations would directly be engaged and governments would be much more likely to act.

Source: NATO

The image above shows what states have forward deployed troops along the eastern flank. The troop presences rotate approximately every six months. Each rotation practices interoperability among contributing member states to maximize their effectiveness on the battlefield.

Visualizing Deterrence

This project aims to provide 3 data visualizations that show NATO’s defense expenditure over the past decade (2014-2023). First, this project visualizes total defense expenditure with two graphs in absolute values. Second, the 2% of GDP guideline will be visualized.

Data

The data used in this project come from directly from NATO.7 NATO publishes aggregate defense expenditure data by member states regularly. The data used here was published on July 7th, 2023.

The raw data was first processed in Stata in order to get ‘clean’ data ready for analysis. This process created “country-years” that allow for time analysis. Then, r was used in order to generate new variables, such as a variable for the percentage change in defense expenditure, as well as to create the data visualizations.

The following variables across a variety of dataframes were used in this project:

Var Label Source
countryname Name of member state (excludes Sweden and Iceland). NATO
year Year (2014-2023). NATO
expenditure Absolute value of defense expenditure. NATO
percent Percentage of GDP spend on defense. NATO
ISO2 Two character ISO country code. “countrycode” package
above2 Dummy variable indicating whether a member state spend above (“yes”) or below (“no”) two percent of its GDP on defense. Generated
percent_change The percentage change in defense expenditure from one year to the next. Generated
increase Dummy variable indicating whether the percent change in defense expenditure from one year to the next was positive (“yes”), negative (“no”), or zero (“neither”). Generated
contributor Indicates whether absolute defense spending came from the US, or Europe and Canada. Generated
Important notes on the data

  1. The values of defense expenditure and percent of GDP utilize 2015 as a base year in order to eliminate the effects of inflation. All values are also noted in USD using 2015 exchange rates.

  2. The data does not include NATO’s newest member: Sweden (joined NATO March 7, 2024). As such, it does not provide a full picture of NATO’s. Sweden aims to spend over 2% of GDP on defense. Iceland is also not included in the data, because it does not have a standing military.

  3. The values for 2022 and 2023 are estimates, access to the true values would make the implications stronger.

Data Visualization and Analysis

Member Expenditure (2014-2023)

This first graph shows the total amount of spending on defense by NATO member state. At the end of each bar, the percent change in defense spending from one year to the next is indicated.

From this graph, it is possible to get a sense of the fluctuation of NATO’s defense expenditure. It looks like most member states typically increase their defense spending from year to year with some exceptions. The next graph shows NATO’s total expenditure from 2014 to 2023, and supports this sense.

Total Expenditure (2014-2023)

NATO’s total defense spending over the past decade consistently increases with the exception of 2015 and 2017. Most notably, the share of expenditure from members other than the US increases every year. Total spending increased approximately $200 Billion over the course of the past 10 years.

Member Percent GDP Expenditure (2014-2023)

The next graph shows how the percentage of GDP spend on defense changes from year to year for NATO member states.

For all members to increase their defense spending to 2% of GDP, many states still need to increase their defense spending substantially. However, as 18 member states are expected to meet the 2% guideline this year, NATO can use this to their advantage in strategic messaging and send a signal of resolve to adversaries, in particular Russia. Furthermore, this increase is an indicator that NATO is enhancing its defensive capabilities and is willing to defend its territory. This, by extension, is increasing its deterrence capability.

Conclusion

It is clear that defense spending has increased over the past decade, and more member states will meet the 2% guideline in the upcoming years. Though, substantial increases in defense expenditure will be necessary to ensure equal burden sharing. Increased defense spending in each of NATO’s member states contributes directly to NATO’s ability to deter adversaries. Additionally, for the purpose of strategic communications, NATO would benefit from more members meeting the 2% guideline. This would send a stronger signal to the rest of the world.

In further analysis, a breakdown of what each member states spends its defense budget on would be a great way to add more granularity to the data. Some of this data is available on NATO’s website, but fall slightly outside the purpose of this project. Other, more granular data, for instance about the spending on procurement of specific armored platforms, would provide an even more detailed insight into NATO’s deterrence ability. Moreover, the visualization would be better if the true values for 2022 and 2023 expenditure were included.

Regardless, with the upcoming 75th anniversary summit in Washington, DC this year, some big announcements can be expected soon, possibly providing more data to analyze.

Footnotes

  1. NATO, “Defence Expenditures and NATO’s 2% Guideline,” NATO, February 20, 2024, https://www.nato.int/cps/en/natohq/topics_49198.htm.↩︎

  2. NATO, “NATO - Topic: Funding NATO,” March 7, 2024, https://www.nato.int/cps/en/natohq/topics_67655.htm.↩︎

  3. Kathleen McInnis et al., “Pulling Their Weight: The Data on NATO Responsibility Sharing” (Center for Strategic and International Studies, February 22, 2024), https://www.csis.org/analysis/pulling-their-weight-data-nato-responsibility-sharing.↩︎

  4. NATO, “NATO’s Nuclear Deterrence Policy and Forces,” NATO, November 30, 2023, https://www.nato.int/cps/en/natohq/topics_50068.htm.↩︎

  5. Russel E. Dougherty, “Capability x Will = Deterrence,” Air & Space Forces Magazine, June 1, 1984, https://www.airandspaceforces.com/article/0684edit/.↩︎

  6. NATO’s core tasks are Deterrence and Defence; Crisis Prevention and Management; and, Cooperative Security↩︎

  7. NATO, “Defence Expenditures of NATO Countries (2014-2023),” NATO, July 7, 2023, https://www.nato.int/cps/en/natohq/news_216897.htm↩︎