Arms Exports for Oil Imports?

Abstract

This article examines the indirect effects of the amount of money the major Western arms-exporting nations spend on imported oil on increases in the dollar volume of arms exports. In other words, are the United States, Britain, France, West Germany, and Italy using arms exports to offset the cost of imported oil? The effects of the dollar volume of oil imports on the dollar volume of arms exports are hypothesized to be mediated through the negative impact that oil imports have on the terms of trade and the positive impact they have on unemployment. These hypotheses are supported by the results of the data analysis. For most of the European countries, arms exports also show a significant increase in response to the declining share of central government expenditures allocated to defense, declining terms of trade, and to increases in rates of unemployment. The results apply to increases in the absolute levels of arms exports. Declining terms of trade and unemployment do not have a strong causal impact on arms exports as a percentage of total exports. The latter is responsive only to changes in the defense budget's share of central government expenditures. Thus alleged “arms-for-oil” deals of the middle and late 1970s are too superficial an explanation of European and American arms sales after the 1973 oil crisis.