Optimal versus required defence expenditure: The case of the Greek-Turkish arms race

The aim of this paper is to indicate the extent to which the arms race against Turkey, in which Greece and Cyprus have been entangled, imposes a defence expenditure burden that is tough for the two allies to bear. To do so we have resorted to evaluating the optimal military expenditure for the two countries, allied in the context of the Integrated Defence Doctrine, which is compatible with the constraints imposed by the resources of their economies. All experiments and scenarios examined lead to the conclusion that the current defence burden of the two allies seems to be driving their economies beyond capacity limits. The fact remains, however, that under the circumstances, a one-sided disarmament policy like the one currently followed by Greece, is a risky choice given that the long-term armament programmes pursued by Turkey, whose role in this arms race has been proven as leading, leave very small room to the Greek and Cypriot sides to reduce their own defence expenditure.     

Budgetary trade-offs of security expenditures in Turkey

This paper investigates the budgetary trade-off structure of security (defence+internal security) expenditures in Turkey for the period 1983-1998. A modified version of Todaro's distributive share index of social welfare is used to quantify the impacts on the growth of primary budget expenditures of Security, Education, Health, General Administration, Infrastructure, and Social Services. We find that defence expenditures dominate overall security expenditures and are less affected in times of bottlenecks in the economy. A systematic pattern of negative budgetary trade-offs of security expenditures in terms of other components is not identified. We also analyse the expenditures of the Defence Industry Support Fund in an attempt to find the cost of the modernisation program to the economy.     

A RANDOM RATIONING MECHANISM WHICH REDUCES THE RISKS OF NO SON LEFT AT HOME

This paper empirically re‐examines the long‐run co‐movements and the causal relationships between GDP and defence expenditures in a multivariate model with real defence expenditure per capita (ME), real GDP per capita (GDP), and real capital stock per capita (K). We apply the view of the aggregate production function to construct the empirical model. Using up‐to‐date data for 27 OECD countries and 62 non‐OECD countries for the 1988–2003 period, we combine cross‐sectional and time series data to re‐investigate the relationship between GDP and ME. Previous studies using time series data may have yielded misleading results on account of the short time span of typical datasets. By contrast, we use recently developed panel unit root tests and heterogeneous panel cointegration tests, and conclude that there is fairly strong evidence in favour of the hypothesis of a long‐run equilibrium relationship between GDP and ME. The long‐run panel regression parameter results, such as the fully modified OLS, indicate that a positive relationship between GDP and ME only holds for OECD countries, whereas a negative relationship from ME to GDP only exists in non‐OECD countries under examination and in the panel as a whole. Furthermore, by implementing the dynamic panel‐based error correction model, we determine that GDP and ME lack short‐run causalities, but do show long‐run bidirectional causalities in both OECD and non‐OECD countries.     

The future of the defence firm: the case of the UK aerospace industry

The focus of this paper is the future of the defence firm within the context of the UK aerospace industry and its supply chain. The analysis considers aerospace markets and the aerospace industry in the UK before assessing the future of the defence/aerospace firm as a case study. The paper concludes that its future in terms of the strategic and important aerospace industry is uncertain. The corporate governance of the defence firm will have to change to reflect the hollowing‐out of the firm as the industry experiences significantly less vertical integration. The emphasis of the future defence/aerospace firm will be on ‘buy’ and not necessarily ‘make’. There will also be fewer independent defence aerospace firms as horizontal integration will occur across air, land and sea platforms as well as civil and defence aerospace firms. Indeed, conglomerate integration may even occur with cost pressures and market forces ensuring that merger activity goes beyond defence and aerospace into wider manufacturing industries and, in some cases, service industries in global markets.     

A LONG‐RUN ANALYSIS OF DEFENCE SPENDING IN THE NATO COUNTRIES (1960–99)

This paper analyses the long‐run demand for defence output through a homogeneous treatment of 15 NATO member countries between 1960 and 1999. We carry out a progressive study of the interactions between either defence spending or defence burden and their main determinants: income, external threat and allied military spending. To that end, we use time‐series analysis with endogenously determined structural breaks. We further consider individual country functions related to one another through a common correlated effects method, in order to take into account explicitly the connections between members of an alliance.     

Military Spending and Income Inequality:Evidence on Cointegration and Causality for Turkey,1963–2007

This paper investigates a series of unit root, cointegration and causality tests to ascertain the direction of causality between the growth of GNP and defence expenditure in Turkey for the years 1955–2000. The main conclusion is that there is a long‐run equilibrium relationship between GNP and defence expenditures. Furthermore, the short run causality test indicates that there is a unidirectional causality between variables, from defence expenditure to economic growth. In order to see the effect of a shock, we employed impulse response analyses. The results show that GNP decreased during the period then output finally recovered from the initial shock to defence expenditures.     

The future of European defence policy: An economic perspective

European defence policy has been dominated by politics. This paper shows how economic principles can be used to derive guidelines for the formulation of European defence policy. The inefficiencies of the EU's existing defence arrangements are identified. It is shown that there is scope for efficiency improvements in the EU's Armed Forces and its defence industries.     

Introduction: Symposium on defence economics

This study revisits the relationship between defence spending and economic growth via a Keynesian model in Pakistan using the autoregressive distributive lag bounds testing approach to cointegration. Empirical evidence suggests a stable cointegration relationship between defence spending and economic growth. An increase in defence spending reduces the pace of economic growth confirming the validity of Keynesian hypothesis in this case. Current economic growth is positively linked with economic growth of previous periods while a rise in non-military expenditures boosts economic growth. Interest rate is inversely associated with economic growth. Finally, unidirectional causality running from military spending to economic growth is found.     

An Empirical Analysis of the Arms Race Between South and North Korea

This study analyses an arms race between South and North Korea over the period 1963–2000. Despite the strategic importance of the Korean Peninsula, the arms race between South and North Korea has rarely been studied. In this study, the South–North arms race is empirically estimated using Richardson’s action–reaction model. The pattern of South–North arms race between the Cold War (1963–1989) and the post‐Cold War eras (1990–2000) as well as the existence of an arms race is examined comparing both countries’ defence spending, number of military personnel and tactical aircraft.     

THE FUTURE OF UK DEFENCE RESEARCH

Developments within the UK in the Ministry of Defence’s policy on defence equipment acquisition demand changes in the scale and allocation of the Ministry’s budget for defence research. To facilitate the national debate on those changes, this paper reviews the key questions about UK defence research which the Ministry must resolve in order to implement its new Defence Technology Strategy.