North and South Korean cases of military build-up show that while North Korea has pursued its armament not in response to South Korea, but by its own initiative, South Korea has continued to strengthen its arms based on North Korea’s military threat. It is interesting to see how North Korea has followed its own military strategy and historical experience to strengthen its military, while South Korea has set North Korean military power as the major target for its military build-up. Using the SVAR model, this study empirically analyzes the dynamic effects of structural disturbances on South and North Korea’s military expenditures. To identify two such disturbances, South and North Korea’s military expenditure shocks, an historical analysis of North and South Korean cases of military build-up has been used to derive the identification restriction. The empirical findings are as follows: firstly, empirical results show that NK shocks dominate the movement of North Korea’s military expenditures, while SK shocks have an negligible effect, the latter’s contributions being statistically insignificant. Secondly, while SK shocks are the main source behind South Korea’s military expenditure fluctuations, NK shocks also play a significant role here. It is interesting to note that the empirical evidence about the impulse response, forecasting the variance and historical decompositions of North Korea’s military expenditures, seems to support previous studies that propose North Korea’s military expenditures follow a random walk process.