The Relevance of Defence Expenditures as an Indicator of a Country’s Military Power

The level defence expenditures is a useful indicator for cross-country comparisons and for the analysis of the trends regarding defence expenditures per country, region or groups of countries. Decision makers often refer to past trends for defence expenditures or the level of defence expenditures for a perceived enemy country to justify political decisions. Still, the data regarding defence expenditures should not be considered the ultimate indicator regarding a country’s military strength and decision makers should be aware of the limitations and underlying assumptions of the methods used to quantify defence expenditures. The most used methods of estimating defence expenditures are based on the exchange rates and the purchasing power parity, with several advantages and disadvantages. While these type of statistics do offer a broad image on the defence expenditures of other countries, they are not a substitute for more in-depth analyses regarding the security and defence environment, the real military strength of perceived foes and a sound strategy for the long term development of the own forces.