The Demand for Arms Imports

Date01 March 2005
DOI10.1177/0022343305050689
Published date01 March 2005
Subject MatterArticles
167
Introduction
The arms trade is interesting because it is
where foreign policy issues such as security,
human rights and international order interact
with economic issues such as trade, jobs and
prof‌its. Thus, when supplier governments
decide whether to allow sensitive arms trans-
fers, they have to balance very different inter-
ests. These political supply decisions are con-
strained by the demand for arms imports, in
particular what drives demand and how sen-
sitive that demand is to price. There is a large
literature on these issues. Anderton (1995)
and Levine & Smith (1997, 2000) provide a
review of the issues. Brzoska (2004a) reviews
recent trends in arms imports, paying particu-
lar attention to how they are f‌inanced and the
implications for development. There is also
concern that the arms trade incites political
violence (e.g. Craft & Smaldone, 2002).
© 2005 Journal of Peace Research,
vol. 42, no. 2, 2005, pp. 167–181
Sage Publications (London, Thousand Oaks, CA
and New Delhi) www.sagepublications.com
DOI 10.1177/0022343305050689
The Demand for Arms Imports*
RON P. SMITH
School of Economics Mathematics and Statistics, Birkbeck College, University
of London
ALI TASIRAN
Department of Economics, Göteborg University
This article presents estimates of demand functions for arms imports for a panel of 52 countries,
1981–99, where there are non-zero observations for both the main measures, WMEAT and SIPRI. In
principle, the WMEAT series is a value measure, while the SIPRI series is a volume measure, thus the
ratio is a proxy for price. A baseline static log-linear model that makes arms imports a function of this
proxy for price, military expenditure and per capita income, is estimated in a variety of ways. This shows
signif‌icant price effects, with an elasticity around minus one; signif‌icant military expenditure effects
with an elasticity below one; and no systematic effect of per capita income, though there is some sugges-
tion that richer countries import less for the same level of military expenditure. Thus, there seems to
be a relatively well-def‌ined demand function of the form that has been assumed in much of the theor-
etical work. The article then examines the effects on the results of: measurement error in the proxy for
price; choice of estimator; non-linearity; dynamic specif‌ication; and possible endogeneity of prices. In
general, the results seem robust, though in cross-section there is a non-linearity – arms imports appear
to rise and then fall as military expenditure increases – which is not apparent in time-series. The cross-
section non-linearity may ref‌lect the long-run effects of the development of domestic arms production
capability on imports. However, because good data on arms production capability are not available,
this explanation cannot be evaluated. Finally, the article reviews a range of potential criticisms of this
approach, and areas for further research are also reviewed.
* We are very grateful to various members of SIPRI for help
with the data. The advice of Associate Editor Michael
Brzoska and three anonymous referees improved the article
substantially. The datasets and Limdep programs can be
found at http://www.prio.no/jpr/datasets.asp. E-mail:
R.Smith@bbk.ac.uk and Ali.Tasiran@economics.gu.se.
03 smith (ds) 1/2/05 1:48 pm Page 167

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