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Estimating the alliance effect: a synthetic control approach

ABSTRACT In a time of rising threat, recurring discussions about burden sharing within NATO and twenty years after the start of the “war on terrorism,” I explore a novel idea in the field of alliance and defense spending: the effect of alliance membership on defense spending in response to a threat. Instead of estimating the determinants of defense spending or burden sharing among members, this paper focuses on two types of states (small and large) and how alliance membership shapes their response to threat. Using the synthetic control method, I create a comparison unit for each type consisting of a weighted average of non-NATO, European countries. 2001 is considered as the starting year of widespread threat, caused by a sudden increase in transnational terrorism. This way, I can estimate the “alliance effect.” I find that both types of states have stronger (positive) response to threat as NATO members, compared to if they would not have been part of the alliance.