Interest group politics and defence spending
In this section we assume that defence spending is like a public good that influences the regional economy. To be more specific, our model posits that defence spending in a regional economy offers public infrastructure that in turn influences the costs of production of local firms, which thereby influence the competitive positioning of the regional economy in the national market. Defence spending also withdraws public funds from other investment projects. So regional impacts of defence spending can vary significantly and trigger diverse types of interest group politics: some regions may clamour for more defence spending while others can oppose if the net effect is not favourable. It is hence important to disaggregate an economy to analyse the determination of defence spending for understanding how political and economic factors impact on the level of defence spending.