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There has been an extensive amount of research on the determinants of military spending over the last 25 years. These studies underline that military spending is a complicated concept, with economic capabilities, political processes and military linkages playing an interdependent role at the national, regional and global levels. Recent works focus on other outcomes of military spending. This chapter develops a model of conflict that generates a demand for military personnel and equipment by countries for either aggressive or defensive purposes. This model highlights some of the key determinants of military spending. Using pooled time-series, cross-sectional data on military spending for 146 countries from 1998 to 2007 we test this model and analyze other possible factors that previously have not been explored in the literature.