My topic involves the sharing of the defense burden within NATO. Initially, I hoped to examine how allied participation in NATO-led interventions affected that country’s economic interaction with the United States. It seemed intuitive that the US might alter levels of aid or trade depending on how cooperative its allies were in the various missions—what can be called a carrot-and-stick approach.
As with most research designs, my original plan changed some as I delved deeper into the study. Eventually, I decided to operationalize my independent variable a little differently, using a more common measure of cooperation which divides military expenditure by GDP. I also broadened my range of dependent variables, testing the effect of allied cooperation on economic aid, military aid, arms trade, imports from the US, exports to the US, and the number of US troops deployed within allied territory. My independent variables were lagged one year, so as to test how cooperation in one year affected these different economic levers in the next year.
My findings deviated from my hypotheses in that the United States does not use a discernible carrot-and-stick approach. In fact, lower levels of cooperation are correlated with higher amounts of trade and economic aid. This creates perverse incentives for US allies to shirk on their commitments to NATO, as they are more likely to benefit from the US economy by spending less on defense.
One problem I encountered throughout the course of this project was the presence of an endogeneity bias. Basically, it is difficult to ascertain whether these economic levers are used to induce future cooperation or to respond to past allied behavior (likely both to a certain degree). With some testing, I discovered that the US is more reactive than proactive with its economic influence. In my paper, I discuss what consequences this potentially can have on the future of NATO.
UNC Chapel Hill