Effects of Anticipated Foreign Military Threat on Arms Accumulation

Abstract

The literature of competitive arms accumulation based on the intertemporal optimization model has in recent years received considerable attention. For example, some models study the strategic aspects of arms accumulation in a dynamic game [1; 11; 6; 14; 15],' others examine the economic effect of consumption, military spending, and arms accumulation in the presence of a foreign threat [5; 6]. However, these studies focus their attention on the stability, the steady-state effect, and the short-run adjustment of military spending and the domestic arms stock following an unanticipated permanent rise in the foreign military threat.2 It seems that very few efforts have been made to analyze the effects of an anticipated foreign military threat on the defense spending and home weapon stock. As a consequence, the first purpose of this paper is to contribute to the literature of competitive arms accumulation through examining the impact of an anticipated foreign threat. There are several examples motivated for such a study. The Middle East is a case in point. Kuwait and Saudi Arabia face the anticipated military threat from Iraq since the outbreak of the Gulf War in 1991. Recently, the peace talk between Israel and Arabs is often held, which makes their people anticipate that the enmity between both sides may be lessened and that the military conflicts in the Middle East may be lowered in the future. The South Asia is another case in point. As India insists on developing their nuclear weapons, the public in Pakistan anticipate that the military threat will be increased and hence will engage in an arms race action. Most studies on military spending use two alternative specifications in the utility function. Brito [1], Simaan and Cruz [11], Deger and Sen [5; 6] assume that the utility function is nonsepara-