Geopolitical Risk and Military Spending: Reassessing Specification and Measurement

ABSTRACT

Tran and Vo analysed English‐language‐based geopolitical risk (GPR) indices and argued that local GPR dominates global GPR in explaining military spending worldwide. We revisit this claim by addressing limitations in their empirical design and measurement. After methodological corrections, panel and country‐specific VAR estimates show no statistically significant effects of either local or global GPR on military spending, except for the U.S., possibly because the current GPR index predominantly reflects U.S.‐centric perspectives. Indeed, local‐language GPR indices for Germany, Russia, and Ukraine yield significant effects or at least reduce standard errors in VAR estimates. These findings highlight the importance of context‐specific risk measurement.