Abstract
Although the Stockholm International Peace Research Institute’s data on the 100 largest arms (and military services) producing firms is very widely used for various purposes, there is relatively little quantitative statistical analysis of it. This article discusses some of the issues involved in the econometric analysis of the data. This is complicated by the difficulty of modeling the processes of mergers, acquisitions, and divestments which drives entry and exit from the list. Various models are estimated to examine (a) the relationship between arms sales and military expenditure, (b) the evolution of concentration and the size distribution of firms, (c) the cross-section relationship between size and growth of firms, (d) the times-series properties of the arms sales of individual firms, and (e) of arms sales by country of ownership.
Highlights
The Stockholm International Peace Research Institute’s (SIPRI) data on the 100 largest arms producing firms is very widely used for various purposes, there is relatively little quantitative statistical analysis of this arms industry data
This contrasts with the vast number of econometric studies using the numbers from the SIPRI military expenditure and arms trade databases
This article will discuss some of the issues involved in the econometric analysis of the arms industry data, suggesting topics worth investigating and linking the analysis of the arms industry to more general approaches in industrial economics
Summary
Neither the share of arms in total sales nor log arms sales in 2011 were significant This suggests that Gibrat’s Law, that growth is independent of size, holds. There seemed to be a nonlinearity in log initial size and when its square was added to an equation, including dummies for other Asian and Russian companies, it was significant, giving a U-shaped relationship with a minimum at arms sales of USD5.7 billion, which was around rank 13. There are two outliers close to the minimum which have the largest negative growth rates, less than minus one These are two U.S firms, Science Applications International Corp., ranked 12 in 2011, which divested Leidos, and Oshkosh, ranked 17 in 2011, which suffered from a decline in demand for armored vehicles with the reduction of U.S troops in Iraq and Afghanistan. Boeing Raytheon BAE Systems Northrop Grumman General Dynamics Airbus/EADS L-3 Communications Leonardo/Finmeccanica Thales United Technologies Textron
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