Defense spending in Latin America: arms race or commodity boom?

Abstract

Both Venezuela and Chile have increased their defense spending since 2003. This thesis seeks to answer the following question: Is the commodities boom in South America responsible for the region's increased defense spending? First, it must be determined whether the increase in defense spending is due to an existing arms race, the historically high revenues of a commodity boom, or if it is simply a military modernization effort. What are the possible reactions of neighboring countries? Further, can game theory be used to provide predictions for regional conflict in South America? Despite the specter of an arms race in the region, this thesis explains that the increased defense spending in both Chile and Venezuela relates more to the 2003-2008 commodity boom than a competitive arms build-up in the region. The 2003-2008 commodity boom and resulting availability of resources, combined with the need to upgrade decades-old, dilapidated military hardware have resulted in a fury of military hardware purchases throughout the region. Additionally, this thesis will provide predictions from game theory literature for regional conflict in South America as other countries in the region have experienced the same benefits of the 2003-2008 commodity boom, and thus have increased defense spending. Using a reciprocating strategy from Robert Axelrod's groundbreaking work, Theory of Evolution. An analysis of the strategy called TIT for TAT shows that cooperation between South American countries is more likely when used assuming indefinite future relations.