Arms export controls and emerging domestic producers†

The possibility of domestic production raises a difficulty for arms export control measures, since embargoes, by raising the effective price of imports, increase the incentive for domestic production. We address this issue by developing a partial equilibrium model of the international arms market We compare three arms export regimes involving the exporters of high‐technology arms, with a particular focus on the effect of emerging domestic production: laissez‐faire trade, the uncoordinated regulation of exports and a producer cartel consisting of coordinated regulation. The main conclusion is that the possibility of domestic production significantly changes the nature of these stylized export regimes.     

Prices and quantities in the arms trade*

There are two main sources of information about the Arms Trade, SIPRI and ACDA. These two sources give very different pictures of the evolution of the market, primarily because their measures are designed to capture conceptually different features. Although they are both expressed in constant dollars, the SIPRI series is designed to be a volume index of physical transfers, the ACDA series a constant price value index. Thus in principle, the ratio of the ACDA to SIPRI series should provide an implicit price index of arms; though in practice there are many measurement problems. In this paper, we discuss the basis of these indices and show that the ratio, the implicit price, not only looks plausible in the light of the evolution of the market, but has a significant negative effect on the demand for arms imports in an econometric equation.