Natural resources and military expenditure: The case of Algeria

With world military expenditure rising rapidly since 2000, one of the possible drivers that has drawn less attention has been the role of natural resource revenues, especially oil. Countries as diverse as Angola, Azerbaijan, Chad, Iraq, Kazakhstan, Nigeria, and Timor-Leste have seen huge rises in military expenditure on the back of rapidly increasing oil revenues. Natural resource extraction can generate conflict and create an imperative to protect resource infrastructure from internal or external threats. At the same time it provides a ready source of government revenue, and in particular foreign currency. The lack of transparency often associated with such revenues may facilitate off-budget spending or large, and possibly corrupt, arms purchases. Up to now, most econometric research has not considered the role of resource revenues as a determinant of military expenditure. We provide a preliminary analysis for the case of Algeria, estimating military expenditure as a function of oil revenues and other economic and security factors from 1975 to 2008. We find some evidence that oil revenues have had a statistically significant positive effect on Algerian military expenditure.