Mintz, Alex; Ward, Michael

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The Political Economy of Military Spending in Israel

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 THE POLITICALECONOMY
OF MILITARYSPENDING
IN ISRAEL
ALEX MINTZ
TexasA&M University
MICHAEL D. WARD
Universityof Colorado

Irior scholarly analysis of Israelimilitaryspendinghas focused on

national security questions. We present a mathematicalmodel incorporatingsecurity
threatsas well as electoralcycles and corporateprofits. The parametersare estimated
empirically.The resultssupportthe idea that in Israelthe militarybudgetat the margins
is also employedas a political-economicinstrumentto help managethe economy and to
provide a favorable election climatefor incumbents.It is suggested that the political-
economic dynamic widely attributed to Western industrializedsocieties may be of
increasingimportancein other societies throughoutthe world.

Defense expenditures dituresin the developedworld. Yet these

in the Third World grew from $104.2 forces have rarely been examinedempir-
billion in 1972 to $180 billion in 1982 ically with respect to the military-spend-
(U.S. Arms Control and Disarmament ing behaviors of other countries (e.g.,
Agency 1984, 11). Such rapid growth is Chatterji1969; Hollist 1977; Mintz 1986).
clearly a by-productnot only of security We assess the impact of several of these
considerationsbut also of domesticpolit- variables on the evolution of Israeli de-
ical and economic influences. Evidence fense expenditureson the 1960-84 period.
from research on the U.S. case (Fischer We choose Israel for several reasons.
and Crecine 1979; Nincic and Cusack The involvement of Israel in the 40-year
1979; Ostrom 1977) and the Soviet case Middle Easternarms race, the participa-
(Nincic1982), as well as researchon some tion of the superpowersin this competi-
West Europeancountries (Domke, Eich- tion, and Arab-Israelitensions have all
enberg, and Kelleher 1983; Eichenberg served to highlight the importance of
1984) points to the importanceof domes- Israeli military spending. Second, Israel
tic constraints in shaping armament has developed a sizable, potent domestic
spending policies. "Linkage"variables arms industry, governed by large state
such as political parties (Bishop and enterprises.Since the armsindustryis siz-
Sorenson 1982), electoral cycles (Nincic able, a greaterpotential exists for policy
and Cusack 1979), public opinion blocs impact to result from manipulation of
(Russett and DeLuca 1981), organized militaryspendingpatterns.Over the past
labor unemployment (Griffin, Devine, two decadesthe armsindustryhas been a
and Wallace 1982), and monopoly cor- crucial component influencing the eco-
porateprofits (Mintzand Hicks 1984) are nomic development of Israel.I Third,
frequentlycited as shapingdefenseexpen- most Israelis believe that questions of

AMERICAN POLITICAL SCIENCE REVIEW

VOLUME 83 NO. 2 JUNE 1989

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 American Political Science Review Vol. 83

militaryspendingare apolitical, owing to Arabia is being assisted by the United

the perceived threat to national security States in modernizingits armed forces.
(Lissak 1983). Further, Israelis are con- Iraqis producingsmall arms, and Syriais
stantlybeing asked to make societalsacri- manufacturingammunition(Brzoskaand
fices to finance the defense budget. Israel Ohlson 1986).
consistentlyranks among the top in mili- This proliferation of military weapon
tary expendituresper capita (U.S. Arms systemsproducedin the ThirdWorld has
Control and DisarmamentAgency 1984). led to growing economic dependenceof
Israelhas also relied on massive military some of these countries on indigenous
and economic aid infusions from the arms productionand consequentlyrepre-
United States. Consequently,the norma- sents a growing potential for political
tive and political implicationsof the non- manipulation of domestic defense
militaryuses of the Israelidefensebudget budgets. Policy makers realize that mili-
are enormous. All these reasons together tary expendituresand military aid funds
make Israel an especially good case for can also be used as a pump-primingmech-
testing the ideas presented in this re- anism in managingthe domestic political
search. economy. Specifically,such quantitiesof
Other societies with sizable and grow- resources can be employed to stimulate
ing defense industries, such as Brazil, sluggish corporateprofits, enhancepolit-
Taiwan, South Korea, Pakistan, and ical support before an election, and
Egyptalso devote between25% and 50% manipulatevoters in anticipationof elec-
of governmentexpendituresto the mili- tions in the donor country.
tary (U.S. Arms Control and Disarma- Many Third World countries are in-
ment agency 1984). Accordingly, with volved in intensiveregionalconflicts that
appropriate modifications, the general often entailarmsraces. Consequently,the
thesis may also apply to some of these use of resources specifically earmarked
countries, for militarypurposesto improve the eco-
nomic well-being of military contractors
The Political Economy or enhance the political fortunes of lead-
of Military Spending ers is controversial.It almost goes with-
out saying that the standardof living of
Since the mid-1960s, arms production many of these societies is lower than that
in the Third World has expandedrapidly of more developed countries. Further,
in both scope and extent. Twenty-six income inequalitiesare often severe. Since
countriesare now producingarms in the thereis no reason to assumethat military
Third World, of which six possess so- spendingis the most usefulmechanismfor
called across-the-boardcapabilities;that raising economic standards,the defense-
is, they can produceall categoriesof arms welfare trade-off is particularly stark.
(Neuman 1984). The proliferationof co- Nonetheless, we suggest that domestic
productionand licensingagreementsfrom political and economic considerationsare
the North to the South now enablesmany so dominant in the calculus of decision
countries to manufacture or assemble makersthat they influencemilitaryexpen-
weapons systems domestically, including ditures, at least at the margins. Conse-
some of the most sophisticated systems quently, we hypothesize that declining
available (Pierre 1981-82, 267). In the corporate profits lead to increasedmili-
MiddleEast, Egyptis currentlyproducing tary spending, that electoral periods are
the Alpha jet aircraftunder license from associatedwith increasedmilitary spend-
France and the AN-TPS-63 radar with ing, and that electionsin the donor coun-
U.S. assistance (KMare 1983, 72). Saudi try are associatedwith changesin military

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 Military Spendingin Israel

aid levels. These forces should be visible panies dominatethe market.The depend-
in Israel. ence of the government on these major
concernsfor economic growth, revenues,
The Political EconomicContext jobs, and exports, has made the govern-
ment sensitiveto the economicwell-being
Arms production activity in Israel ac- of these companies. Bichler (1986) notes
counts for a very large share of overall that militaryexpendituresare essentialfor
industrial activity (Brzoska and Ohlson the economic well-being of major con-
1986, 22). Specifically,investmentin the cerns in Israel. Steinberg and Hadar
defense sector accounts for as much as (1988)similarlyconcludedthat the largest
50% of all industrialinvestmentin Israel. concerns are the main beneficiaries of
Almost one-fourthof the industriallabor governmentalsupportfor high-techproj-
force in Israel is engaged in military- ects, such as characterizemuch defense
related projects, about one-fourth of spending. Consequently,military expen-
Israel'sindustrialexports (excludingdia- ditures are expected to increase signifi-
monds) originate in the defense sector, cantly following a declinein profitsof the
and 8 of the 20 largest corporations in majorindustrialconcernsin Israel.
Israel are highly dependent on military Given the fragile nature of coalition
contracting.Three of the top five Israeli politics in Israel, where two major and
companies are primarilyconcernedwith roughly equal bodies-the Laborand the
productionof goods and services for the Likud parties-are strugglingto achieve
defense sector (Mintz 1987). power, all recent Israeli elections are
Manufacturingand services of defense highly competitive, and incumbentsmay
items are significantin terms of employ- be tempted to manipulateeven the puta-
ment, revenues, and exports in all three tively apolitical defense budget. More-
sectors in the Israeli economy. These over, as the Israelielectorateshifts more
influencesrange at the high end from the intensivelytoward the Right, as reflected
government's commercial enterprises, in elections 1973, 1977, and 1981, neither
throughthose of the LaborFederation,to party can allow itself to appearunrespon-
a slightly smallerweight in the purelypri- sive and "unpatriotic"towards defense
vate sector (Mintz 1987, chap. 9). The spending(Mintz 1988). The pervasivein-
level of industrialdependenceon defense fluence of militaryspendingmakes it dif-
contracting in Israel created a situation ficult for elected politicians to vote
whereby the Israeligovernmenthas been against increases in the budget. We
forcedin recentyears to considernot only hypothesize that defense expenditures
the security ramificationsof its military grow before an Israeli election. Since
procurementpolicies but also the eco- domestic political considerationsalso in-
nomic and political implicationsof arms fluence U.S. aid decisions (Bard 1988;
productiondecisions.This was evident in Quandt 1988), we hypothesize that
the decision to develop the Lavi aircraft changes in U.S. aid to Israel also reflect
despiteoppositionfrom the groundforces the electoral cycle in the United States.
of the Israelimilitaryand later on to can- These political and economic considera-
cel it despitesupportfor the projectfrom tions are vastly overshadowedby Israel's
the commanderof the air force. Similar geopolitical and strategicsituation stem-
concerns were visible in numerous deci- ming from regional securityconcerns. In
sions about the exportation of military fact, some would arguethat if thereis any
equipmentfrom Israel. The oligopolistic state where the defensebudgetis unlikely
structureof the defense industryin Israel to be used as a political and economic
is reflectedin the fact that six majorcom- managementtool, it is Israel, since Israel

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 American Political Science Review Vol. 83

is surroundedby real enemieswith which and down in symmetry. Based on Stock-

it has fought real wars. holm InternationalPeace ResearchInsti-
tute data (1987, 234), six out of eight
years between 1976 and 1985 show a cor-
The SecurityContext respondencein the directionof percentage
The arms race between the Arab states increasesbetween Israel and Egypt, Jor-
and Israel has been a fact of life in the dan, and Syria. Consequently,when the
Middle Eastfor severaldecades. The race military spending of the confrontation
gained momentum following the Yom states is going up, Israelimilitarybudgets
KippurWar of 1973. In part this was due also tend to go up. Similarly, they both
to the surplus petrodollars that resulted tend to be reduced in the same years.
from the rapid rise in world oil prices. Figure1 shows the individualexpenditure
This arms race continued throughoutthe figures for Israel, Egypt, Jordan, and
1980s. The quantities of weapons trans- Syria. These data illustratethat even in
ferred to the region were matched by periods of drastic developments in the
qualitativechanges as well. Consequent- Middle East (the Egyptian-Israelipeace
ly, both Israeland its rivals accumulated treaty, the war in Lebanon), changes in
large quantities of sophisticatedconven- Israelidefenseexpenditurescorrespondto
tional weaponry (Heller, Tamari, and changesin Arab militaryexpenditures.In
Eytan1983). The race has come at a stag- particular,one observesthat until the Six
gering cost. Middle Easterncountriesare Day War in 1967, EgyptoutstripsIsrael's
currently buying more than $15 billion militaryspending,althoughby decreasing
annually in foreign armaments-"more amounts. Subsequently, both Israel and
than all NATO and Soviet bloc countries Egypt continued to accelerate their
combined"-and military spending from military spending, though Egypt'sspend-
the midseventies to the mideighties ing was lower than Israel's.Additionally,
totaled more than $500 million (Congres- during this period (1967-73) Syria began
sional Quarterly1986, 67). rapidly increasing its military outlays.
The Arab-Israeli arms race is often Following the 1973 war, there was addi-
viewed from the perspective of the on- tional upwardpressureon militaryexpen-
going regional conflict. This conflict has ditures. During the post-Camp David
had threephases in its development:"The period Egyptian military spending is
first was the civil strugglebetween Arab markedlyreduced, Israel exhibits a level
and JewishPalestiniansduringthe British trajectoryof real military spending, and
Mandate period. The second began in Syria climbs to a new high point, then
1948 when Israel declared its independ- levels off. It appearsthat thereis a relative
ence and the Arab states became in- stability in the overall spendingpatterns
volved, engaging Israel in its first war. duringthe 1980s. It is worth noting that in
The thirdstage, harderto pinpoint, came combination Egypt, Syria, and Jordan
some time after a later war, in 1973. It outspend Israel. The security threat, the
was then that the conflict focus shifted Middle Easternarms race, and the Arab-
from the Arab states to the Palestinians, Israeliwars are taken for grantedas fac-
particularly the Palestine Liberation tors shapingthe evolution of Israel'smili-
Organization.This shift was strengthened tary expenditures.
in 1979 when Egyptsigned a peace treaty
with Israel" (Congressional Quarterly A MathematicalModel
1986, 7).
In general it is the case that Arab and To test the theoreticalargumentabout
Israelimilitary spending trends move up the impact of corporateprofits, electoral
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 Military Spending in Israel

cycles in Israel and the United States, Figure1. Arab and IsraeliMilitary
Arab military spending, and the Middle SpendingPatterns,1958-85
Easternwars on Israeli defense expendi- (Million 1980 U.S. Dollars,
tures, we specified and empiricallyesti- LogarithmicScale)
mated a model as a system of dynamic,
nonlinear, differentialequations. 10,000
The point of departureis the assump-
tion that the Israelimilitary budget con- Z
0 5,00 0 ' _--
-e
sists of two sets of expenditures:domestic :i 1.00C
defense expenditures, which normally
account for at least 50% of the total 500 ,I,,,,,,.I.||..

budget, and militaryimports,which con- 1965 1970 1975 1980 1985

1960
stitute the bulk of the remainingitems. YEAR
The former is primarily earmarkedfor
-ISRAEL ---JORDAN --EGYPT ---SYRIA
such budgetitems as compensationof em-
ployees in the defense sector, purchases
and servicesfrom the domesticeconomy,
and construction;while the latterconsists By way of notation, yi variables are en-
mainly of imports of weapon systems. dogenous, while xi variables are exoge-
Together,these componentsrepresentthe nous. Inferredtargetvariables,which are
total Israelimilitarybudget. not measured,are indicatedby a tilde, as
Previousstudiesshowed that the Arab- in Pi. Endogenousvariables measuredin
Israeliwars, the military expendituresof shekels are flagged with a superscripts,
the Arab states, and the Israeli Defense those measuredin U.S. dollars with a d:
Forces (IDF) intensification programs ye or y41 respectively.
strongly affected both the domestic The firstof theseequationsportraysthe
defense budget and militaryimports. We domestic budget requests, or the desired
hypothesize that domestic political-eco- level of domestic spending (y7), being
nomic factors, too, influence spending, driven by three forces: defense imports
when decliningcorporateprofitsand elec- (y3), war involvement (xl), and the per-
toral politics strongly affect the domestic centageincreasein Egyptian,Syrian, and
defense budget, and that electoral cycles Jordanianmilitary expenditures(x2). De-
in the UnitedStatessignificantlyinfluence fense imports, consisting mainly of pro-
U.S. aid decisions, which in turn affect curement of new military equipment,
Israel'smilitaryimports directly. influence the domestic defense budget,
since the acquisition of new military
equipment normally requiresthe expan-
Model Specification sion of maintenanceand operationspro-
grams. Consequently, defense imports
The first part of the model focuses on tend to place an upwardpressureon the
the domestic defense budget. This com- domestic defense budget and do not, we
ponent of militaryspendingis represented hypothesize, involve trade-offs of the
in equations1 and 2: kind McGuire (1982) has identified in
other aspectsof Israeliresourceallocation
Y1 = 11Y3 + 2Xl + :3X} () related to defense policy making. During
dy= /34 Al -
periods of war involvement in which a
YJ1 + f35x3
high number of Israeli casualties occur,
dt additional pressure is placed on defense
+ i64 - 7X5 (2) needs, since war involvement (xi) also

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 American Political Science Review Vol. 83

invariably leads to replacementof mili- Accordingly,we hypothesizethat it exerts

tary equipment that is destroyed or a negativeinfluence.Moreover,while the
shown to be obsolete on the battlefield. rate of growth in compensation of em-
These pressureslead to increases in the ployees in the military sector in the year
budgetary request. Finally, no model of precedingan election is typically smaller
contemporary and historical defense than normal (Mintz 1988), the total
spending in Israel is complete without amount of spending is thought to be
inclusion of some direct measure of the gradually adjusted upward as elections
impact of the perceivedthreatthat Israeli (x4) approach,since it is politically bene-
decision makers face. To the extent that ficial for incumbentsto createthe illusion
the Arab states are increasingtheir mili- of a flourishingeconomy just before an
tary expenditures,Israelidefenseplanners electionand sincepoliticiansare unableto
feel compelledto requestincreasesin the say no to demandsfor increasedspending
resources allocated to the domestic de- before an election. Inflation (X3),as cap-
fense budget. tured by the consumer price index, has
Equation 1 portrays the hypothesized also been shown to accelerate defense
relationshipbetween the military budget spending(Wardand Mintz 1987).
requestsand three, linear, additive com- The second part of the model focuses
ponents: defense imports, war involve- on Israel's military imports. This com-
ment, and changes in Arab military ex- ponent of militaryspendingis represented
penditures.It representsthe desiredlevel, in equations3-6. Theseequationsportray
or goal, for spending on the domestic the level of military imports that Israel
aspects of the military budget in Israel. receives, valued in constant dollars (y,),
Equation 1 is used to create a measured as being driven by three differentforces,
goal, which itself is employedin equation most importantly,the amountof military
2. aid Israelreceives(Berglas1983).
Equation 2 describes the adjustments
that we hypothesizepolicy makersmake y2' = 38X2 + 39X6 (3)
in the domestic budget requests in re-
sponse to political and economic pres- dyd2= -( Y) + X7]s (4)
sures.The primarymechanismis an adap- dt
tive one that drives expenditures (y5)
towardthe requestsas definedin equation dy3 = [f12(Y2-Y-30S
1, namely, y'. The rate at which the ac- dt
tual and the desiredconvergeis captured + U313(3 - y3)](1 - s) (5)
in the adjustmentcoefficient 14. Due to
the security threat to Israel and the Y3 = $14X2 + 15X6 (6)
strength of the Israeli military elite, we
hypothesize that the level of defense ex- Equation3 representsthe establishmentof
penditures approved adapts to the re- a target for Israeli military aid (P27).It
questedlevel of militaryexpenditures. should be stressedthat this equationrep-
The budgetary requests are adjusted resents some consensus between the
upward due to domestic pressures. In United Statesand Israelas to the needs of
periodsof decliningcorporateprofits (x5) the Israelis. We posit that there is broad
for example, the government may use agreementon (1) the militarythreatof the
defensespendingas a countercyclicaleco- so-calledconfrontationstates (Egypt,Jor-
nomic device to stimulate the economy, dan, and Syria),hereinreflectedin x2 and
prevent unemployment, and increase (2) the militaryneeds of the IsraelDefense
profitability of the defense industry. Forces,as measuredby the intensification

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 Military Spendingin Israel

programsof the IDF (x6). While defense (the first term in the equation) and pre-
expendituresof the Arab countriesinflu- 1967 military imports (reflected in the
ence Israel's military expenditures, a second term in the equation). The varia-
reciprocalinfluence is not ruled out (see ble s1 is a switch between each of these
Hollist 1977 for such evidence). two differentaid regimes.Equation6 sim-
The Israeli military aid target (P2), as ply capturesthe pre-1967goal for military
negotiatedbetween the United States and imports (93) as a function of Arab mili-
Israel,accordinglyrespondsto changesin tary spending(x2) and IDF buildingpro-
Arab military expenditures (x2), and grams(x6).
major intensificationprograms(x6). The To representtotal Israelidefenseexpen-
effect of war involvement on the Israeli ditures an identity is used: the sum of
military aid target is excluded from this domestic expendituresplus defense im-
equation, since it is captured independ- ports. This identityis representedas equa-
ently by the Arab postwar intensification tion 7 in the mathematicalmodel:
efforts and the IDF intensificationpro-
grams. The correlation Israeli war in- A aY1 + Y3 (7)
volvement and Arab military expendi- Data Sourcesand
tures is .70. Luttwak (1984, 131) argues EstimationMethodology
that Israel'sweapon systemintensification
programshave reflected the force struc- The basic procedure employed non-
ture goals of the Israeliarmed forces, as linear minimization of a goal function
derived from "evolving operation con- definedfor the entiresystem of equations.
cepts of war as well as changing defini- This goal functionis minimizedsubjectto
tions of national security."This stands in the parametersof the system, which are
contrast to many Third World nations constrainedto be positive. The methodol-
that tend to define their defense needs in ogy is explained in some detail in Ward
retroactiveresponseto theirweaponssup- 1984 and has been employed in a wide
pliers. Nevertheless,as in othercountries, variety of studiesin political science. (See
the militaryaid targetin Israelis virtually Allan 1983; Lambelet,Luterbacher,and
always greaterthan the amount actually Allan 1979; and Luterbacherand Allan
granted. Equation4 portrays the evolu- 1982 for single equation versions of the
tion of actualmilitaryaid (y2)as it adjusts approach. Ward 1984, Ward and Maha-
to domestic political constraints in the jan 1985, Ward and Mintz 1987, and
United States. Consequently,we hypoth- many macroeconomic studies such as
esize that the timing of increasesin aid to Gandolfo 1981 and Wymer 1972, among
Israelcorrespondsto the electoralcycle in others, employ a system approach to
the United States (X7), as well as to the minimization.)
desiredaid target(kd). The specificstrategyemployedconsists
Finally, we posit that military im- of first obtaining single-equation non-
ports (equation5) adjustto the amountof linear estimatesof the parametersto pro-
militaryaid grantedby the United States. vide initial values for the system estima-
In earlierperiods in which there was no tion. The estimated single-equation
militaryaid grantedby the United States, parametersthen become starting values
military imports adjusted to the per- with which to begin the minimizationof
centagechangesin Arabmilitaryintensifi- the systemcriteria.The systemcriteria,or
cation programs as reflected in their R2 is given by
defense spending and to IDF intensifica-
tion programs.Accordingly,we posit dif- R2 = 1.0 det(e'e)
ferent mechanismsfor post-1967 imports det(y'y)

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 American Political Science Review Vol. 83

Table 1. Estimated Parameters and Standard Errors

Parameter ParameterDescription EstimatedValue StandardError

Equations1-2a domesticmilitaryspending
,lil feedbackof defenseimports .0 1.99
12 impactof war casualties 30.07 1.17
,13 impactof Arab militaryspending 736.79 28.08
14 adjustmentspeed .00294 .00006
135 impactof inflation .0 .0004
16 impactof Israelielection 46.28 3.18
(7 impactof corporateprofits .0113 .0056
Equations3-4b U.S. militaryaid to Israel
138 impactof Arab militaryspending 114.8 5.7
139 impactof IDFprograms .0 123.7
310o adjustmentspeed .084 .005
oi impactof U.S. election 226.0 17.8
Equations 5-6C Israeli defense imports
112 adjustmentspeed, post-1967 1.53 .59
013~ adjustmentspeed, pre-1967 .00895 .00186
14 impactof Arab militaryspending,pre-1967 235.4 96.8
,15 impactof Arab militaryspending,post-1967 8,466 2,852
Note: R2Sys = .964.
R
aDependentvariable=y; - .973; standarderror = 74.8.
bDependent variable = y 2d;R2 .674; standard error = 294.
variable -y;
CDependent R2 .799; standarderror = 156.

such that y is a matrixof observationson tic product deflator, annual inflation

the G endogenous variables, and e is a index, and exchange rates were taken
matrix of [G, NJ errors. This measureis from publications of the International
similarto the standardR-squaredmeasure Monetary Fund,3 while figures on the
and has a comparableinterpretation,but annual percentage change in Egyptian,
it is not an averageof individualequation Jordanian,and Syrian military expendi-
R-squareds,since it takesinto accountthe tures (in constantdollars)were computed
overidentifying restrictions. Anderson from data obtained from Stockholm
(1958, 166-69) providesan early and clear International Peace Research Institute
statementof this. An excellent,up-to-date 1987. Data on corporate profits were
text on nonlinear statistical models is taken from Bichler 1986, reporting per-
Gallant1987. centage annual change in the profits of
To estimatethe model, data were taken major economic concerns in Israel. War
from official Israeligovernmentstatistics casualtieswere takenfrom Zussman1983
whereverpossible. The data on domestic and the IsraelInformationCenter'sIsrael
defense expenditures, defense imports, Government Yearbook. These figures
and total militaryexpenditures(all in con- refer to Israelicasualtiesin wars and not
stant 1975 Israeli shekels) representfinal in other military activities such as pre-
outlaysand were obtainedfrom the Israeli emptive and retaliatory attacks against
Central Bureau of Statistics.2 Data on the PalestineLiberationOrganization.In-
military aid to Israel (in constant 1975 formationon the intensificationprograms
U.S. dollars)were takenfrom the Bankof of the IDF were taken from the Israeli
Israel'sAnnual Report, The gross domes- Defense Forces'IDF in Its Might (1982)

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 Military Spendingin Israel

and were estimatedby the authorsfor the Figure 2. Actual and Predicted Israeli
years subsequentto 1982. Thesedata refer Domestic Defense Expenditures
to the introductionof new weapons sys- (1975 Shekels)
tems such as the F-4, F-15, and F-16. The
1800
post-Camp David buildup in the Israeli -
1600
Negev is excluded, since it is not included 1400 -
in the official IDFbudget. cn 1200 _
z
O 1000 _
-
Empirical Results n
-j 800
-
2 600
-
Table 1 presentsthe resultsof the statis- 400

tical estimationof the parametersfor the 200 _

C I I I I . I I
mathematicalmodel. Figures2, 3, and 4, 1945 1950 1955 1960 1965 1970 1975 1980 1985
respectively,presentthe actual and fitted YEAR
trajectoriesof the threemajorendogenous .----.ESTIMATED SERIES
variables:domestic military expenditures -ACTUAL SERIES

(y5), U.S. military aid to Israel (y,), and

Israeli foreign military imports (ys). Figure 3. Actual and Predicted
Figure5 presentsthe total Israelimilitary U.S. Military Aid to Israel
budget as composed of the two estimated (1975 U.S. Dollars)
and actual series, namely, the domestic
4000
budget plus the foreign military imports.
3500
Each of these graphicsillustratesthe rela-
3000
tively good fit of the estimatedtrajectories C,,
z 2500 -
with the actual data and suggest that the 0
? 2000 -
data and the model are compatible one 1I500 -
with another. 1I000
Turning to the first component of the 500-
model, parameters l1-f7 and Figure2, it c I I 1
is clear that the overall fit of the model 1945 1950 1955 1960 1965 1970 1975 1980 1985

and the data is strong. Not only is the YEAR

..He ESTIMATED SERIES
level of domestic military spending ade- -ACTUAL SERIES
quately reflected by the model, but the
majorturningpoints in this seriesare also
captured. Moreover, five of the seven Figure 4. Actual and Predicted
parametersare of the expected sign and Israeli Defense Imports
much greater than their corresponding (1975 Shekels)
standarderrors. 1600
The largestimpacton domesticmilitary 1400
spending comes through the monitoring 1200
of Arab military spending patterns, as
0
seen in the large, significant, positive 800
?81000 a
coefficient, f3. In the same vein, the !600-
weight of Israeli war casualties on the 400 - -.
domestic military budget is, as hypothe- 200
sized, considerable. Thus, the security 0l
1945 1950 1955 1960 1965 1970 1975 1980 1985
concerns of the Israelis are seen to play YEAR
the major role in determiningthe domes- *##a ESTIMATED SERIES
tic militarybudget in Israel.Nonetheless, -ACTUAL SERIES

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 American Political Science Review Vol. 83

both the onset of the election period and adequate, but the major fluctuations-
corporateprofits play importantparts in primarilycausedby war periods-are not
the evolution of the domestic military adequatelyreflectedin the estimatedrela-
budget, although the hypothesizedfeed- tionships. Again, security concerns are
back from Israelidefense imports (y3) to the most important here, as seen in the
the domestic side of the budget turns out positive, significant parameter for the
to have a negligibleimpact, with the esti- weight of Arabmilitaryspendingin estab-
mated parameter,though positive, being lishing goals for U.S. military aid. The
essentiallyzero and nonsignificant.Addi- intensification programs of the Israeli
tionally, inflationwas also found to have Defense Forceswere not found to play an
a parameterthat was effectivelyzero and important role in these aid targets, as
nonsignificant. shown by the negligible value for fly,
In particular, as suggested, the com- probably because of the contemporane-
petitive election dynamic in Israel makes ous impact of the Arab postwar intensifi-
it difficultfor the incumbentsto "justsay cation programs. On the political-eco-
no" to requestsfor increasedspendingfor nomic side, the empirical results again
Israelinationalsecurity,one majorconse- point to the presenceof a high degreeof
quence being that the periods just before sensitivityto the politicalprocessnot only
an election witness growth in the govern- in Israel but also in the United States.
ment military outlays. This conjectureis Thus, the impactof U.S. presidentialelec-
strongly supported by the empirical re- tion cycles (fl11) is to drive up the granting
sults as reflectedby the significant,posi- of U.S. militaryaid to Israel.In a manner
tive parameter f6. Similarly, given the similarto the patternfound for domestic
prominence of the military-industrial- military spending, the adjustmentof ac-
governmentalpartnershipin Israel,falling tual U.S. aid to Israel to its desired or
profits (primarily in the three defense- negotiated level is fairly slow and the
orientedmonopolies)are seen to motivate impact of the past is not very heavily dis-
some increases in domestic military counted. In additionto the militaryaid, it
spending. This result accords with the is important to note that Israel also re-
conjecture that even in highly security- ceives economic aid of $785 million per
conscious societieslike Israel,the govern- year from the United States. This aid is
ment is able to use military spending at officially earmarkedfor civilian projects
the margins to influence the prevailing but relieves some of the pressureon the
macroeconomicconditions. Quite inter- nationalbudgetand henceindirectlyhelps
esting, also, is the fact that the adjustment to finance military programs (McGuire
speed of Israelidomesticspendingis very 1982).
slow, suggestingthat the role of accumu- Figure4 portrays the total amount of
lated history is quite significant.Hence, it Israeliforeignmilitaryimports.The over-
appearsthat for Israel,at least, the impor- all fit of the model to the data is again
tance of priorsecuritythreatsas well as of strong, although, in contrast to the first
priordomesticpolitical-economiccircum- two componentsof the model, the adjust-
stances weighs very heavily (i.e., are not ment speed of Israeli foreign military
heavily discounted)in calculatingcurrent importsto the level of U.S. militaryaid to
defenseneeds. Israel is virtually instantaneous-1.53.
The least accuraterepresentationis of This means that Israel makes its total
U.S. military aid to Israel, whose abrupt military imports almost identical to the
fluctuationsare not well capturedby the amount of aid it receivesfrom the United
model. As seen in Figure3, the overall fit States. Finally, Figure 5 illustrates the
of the model to the military aid series is congruence of the total Israeli military

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 Military Spendingin Israel

Figure5. Total Israeli being of majorcorporationsalso influence

Defense Expenditures spending.The militaryin Israelis the gov-
(1975 Shekels) ernment's single most important fiscal
4000 - mechanismfor stimulatingthe economy
3500 - and influencingelections,and the govern-
3000 - ment is simply not able to overlook its
Cn
z 2500 - political and economic significance.
- 2000 - The importanceof domestic political-
= 1500 - economic factors in influencing defense
1000 _ expenditures in the United States, the
500-
Soviet Union, and many Western Euro-
945 1950 1955 1960 1965 1970 1975 1980 1985 pean countriesis well documented.Since
YEAR these political-economic influences may
? * - ESTIMATED SERIES be seen in the Israelicase, they appearto
-ACTUAL SERIES be more general than previously shown.
Israelpresentsa "hardtest"for this thesis.
In particular,these influencesshould not
budget, with the total constructedfrom be overlooked in the analysis of military
the estimated components, a further expendituresof less-developedand newly
check on the overall coherence of the developedsocieties.If a society like Israel,
model. The visual fit of both the level and which faces
continuing and periodically
the major turningpoints is quite sugges- intensifiedthreatsto its security, also uti-
tive of the high correspondencebetween lizes the defensebudget(albeitat the mar-
model predictionsand actual outcomes. gins) as an instrumentof macroeconomic
All in all, the ideas set forth have been and electoralpolicy, such practiceswould
remarkably robust in suggesting the appearto be widespread.Accordingly,in
broad outline of the military-security,as societies with lower levels of conflict
well as political-economic,influenceson involvement than Israel, the defense
the evolution of the militarybudgetin one budgetis likely to be usedmorewidely for
industrializing nation with a growing nonmilitarypurposes, especially if these
domestic defense industry-Isr'ael. The societies also possess a significant local
derived model and the actual data are armament industry. Although current
remarkably similar, and the estimated knowledge is insufficient for sweeping
parametersare significant and interpret- claims of generality, empiricaland theo-
able in terms of both the model and the retical evidence converges in suggesting
history of Israelidefensepolitics. the prevalenceof militaryas well as non-
military uses of defensebudgets in many
countries. The emergenceof indigenous
defense industriesin such heterogeneous
Conclusion societies as Argentina, Brazil, India,
Egypt, South Korea, Pakistan, and
Our message is simple. Even in highly Taiwan, makes the defensebudgeta very
security-conscioussocietiessuch as Israel, likely candidate for political and eco-
the governmentuses the defensebudgetat nomic manipulation.The implicationsof
the margins to respond to political and this study go beyond the Israelicase and
economic pressures.While security con- point to the potentialimportanceof view-
siderationsplay the key role in influenc- ing the defense budget as one of the pri-
ing military spending, electoral competi- mary political-economictools of national
tion and concernsfor the economic well- decision makers.

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 American Political Science Review Vol. 83

Notes Catherine M. Kelleher. 1983. "The Illusion of

Choice: Defense and Welfare in Advanced Indus-
trial Democracies, 1948-1978." American Polit-
The authorswould like to thankShimshonBichler ical Science Review 77:19-35.
for sharinghis data on corporateprofits. JaniLittle Eichenberg, Richard C. 1984. "The Expenditure and
and ZekeLittleprovidedhelpwith the graphics,Jean Revenue Effects of Defense Spending in the Fed-
Umbreitassistedwith word processing,AndrewM. eral Republic of Germany." Policy Sciences 16:
Kirbyprovokedus to clarifysomeof ourarguments, 391-411.
and Donald Knuthmade it all a greatdeal easier. Fischer, Gregory W., and John Patrick Crecine.
1. We recognizethat it is controversialto define 1979. "Defense Budgets, Fiscal Policy, Domestic
Israelalong developmentaldimensionsor to place it Spending, and Arms Races." Presented at the
in the ThirdWorld. Peri (1983, 3) explained,"From annual meeting of the American Political Science
the point of view of its geographicallocation, its Association, Chicago.
period of politicalindependenceand certainaspects Gallant, Ronald A. 1987. Nonlinear Statistical
of its social fabric,Israelappearedat one end of the
Models. New York: John Wiley & Sons.
spectrum,while its economic characteristics,polit- Gandolfo, Giancarlo. 1981. Qualitative Analysis
ical regimeand culturalsystem seemedto point to and Econometric Estimation of Continuous Time
the otherextreme."Nonetheless,virtuallyall studies Dynamic Models. Amsterdam: North-Holland.
of armsproductiontreatIsraelas a developingThird Griffin, Larry J., Joel Devine, and Michael Wallace.
Worldnation (e.g., Brzoskaand OhIson1986;Katz 1982. "Monopoly Capital, Organized Labor, and
1984; and Neuman1984). Military Expenditures: Military Keynesianism in
2. Monthly Bureauof Statistics,supplementsto the United States, 1949-1976." American Journal
vols. 4 (1982)and 36 (1985);and StatisticalAbstract of Sociology (Supplement) 88:S113-S153.
of Israel. Heller, Mark, Dov Tamari, and Zeev Eytan. 1983.
3. InternationalFinancialStatistics,with the Sup- The Middle East Military Balance. Tel Aviv;
plementon ExchangeRatesno. 9 (1985)and Supple- Jaffee Center for Strategic Studies.
ment on Price Statisticsno. 12 (1986), Hollist, William Ladd. 1977. "Alternative Explana-
tions of Competitive Arms Processes: Tests on
Four Pairs of Nations." American Journal of
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Alex Mintz is Associate Professor of Political Science, Texas A&M University, Col-
lege Station, TX 77843.
Michael D. Ward is Professor of Political Science, University of Colorado, Boulder,
CO 80309.

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