Modeling the Production and International Trade of Arms: An Economic Framework for Analyzing Policy Alternatives
Abstract
This report analyzes international arms transfers and indigenous arms production as interrelated economic activities. The analysis embeds these activities in a framework of economic, diplomatic, and political incentives and constraints. A traditional economic model of trade is applied to the activities of arms production and transfer. Such factors as arms races, military threats, and drives for regional leadership are assumed to enter each country's demand function for arms. A country's domestic supply of arms depends on such economic factors as its supply of physical and financial capital, skilled personnel, technology, raw materials, and the price of arms. Each country's demand and supply, along with world market conditions, influence whether a country produces arms and whether it imports or exports them. The basic model yields predictions that suggest certain empirical relationships. These are tested in preliminary attempts to assess both the reasonableness of the model and the availability of data. The model predicts that exports should be inversely related to domestic demand. Review of U.S. exports during the course of the Vietnam build-up and subsequent decline broadly supports the prediction. The second empirical application concerns the supply and demand influences on indigenous arms production. Using a cross-section of 30 countries, the size and technical capabilities of the manufacturing sector are shown to influence indigenous production on the supply side, and the level of military expenditures is weakly related to demand. Although these preliminary results are only suggestive, if confirmed in future research the prospect is that growing numbers of countries will produce arms as population growth and industrialization proceed in the Third World. A final discussion considers ways in which the approach described in the report could be extended and refined.
Document Details
- Document Type
- Technical Report
- Publication Date
- Mar 01, 1981
- Accession Number
- ADA483811
Entities
People
- Arthur J. Alexander
- Michael Mihalka
- William P. Butz
Organizations
- RAND Corporation