The Economics of Exporting Arms

Abstract

The international trade in arms has an important economic dimension which this paper attempts to examine. After reviewing the evolution of demand and supply, the implications of the current market structure for price and revenue are examined. This suggests that, in purely commercial terms, the promotion of arms exports by a country is not a profitable proposition. Given this, we consider why governments in supplier countries have nonetheless heavily promoted arms exports. It appears that the initial momentum was provided by strategic and political objectives but that the growing dependence of particular interests on arms exports created a powerful economic lobby, despite the lack of commercial logic. In fact these economic pressures tend to undermine the political and strategic objectives. This contradictory relationship is examined by regression analysis of time-series for five countries. Although the estimates suffer severe limitations, a dynamic model suggests that a country's military expenditure has conflicting positive and negative effects on its arms exports.