Arms race between Greece and Turkey:: A Markov switching approach

Two NATO allies, Greece and Turkey, have also been considered potential threats to each other. Thus, these countries' military spending has been subject to many academic studies to observe if these potential threats trigger the military spending of both countries. Nonetheless, most regression results of those studies did not find a significant result supporting the arms race between the two countries. The current study provides an additional empirical evaluation of military spending of both countries by using an annual data set running from 1958 to 2004. The study is in spirit of Smith et al. (2000) employing a Markov switching approach, but utilizing a longer period. A Markov switching approach allows estimation of military spending of each country if both sides compete with each other to have higher spending or if they behave independently of each other.