Challenges to national defence in contemporary geopolitical situation

This study investigates the long-term relationship between military expenditures and public indebtedness in Finland and Sweden over the period 2000–2024, in the context of rising defence spending linked to the Russian–Ukrainian conflict and NATO’s 2% GDP target. The main objective is to examine whether a positive relationship exists between military expenditures and national debt. Estimating an autoregressive distributed lag (ARDL) framework with macroeconomic control variables, the results reveal a statistically significant positive long-run effect for Sweden, while Finland exhibits a negative relationship. The findings suggest that the fiscal impact of defence spending is country-specific.