A PANEL DATA ANALYSIS OF THE NEXUS BETWEEN DEFENCE SPENDING AND GROWTH IN THE EUROPEAN UNION: A COMMENT

Abstract

This paper explains and assesses the UK experience with determining prices and profitability for non-competitive defence contracts. Three periods are considered, namely pre-1968, the 1968 Profit Formula Agreement and the changes introduced in 2014. Two cases of ‘excessive’ profits were major determinants of the 1968 Profit Formula Agreement; but continued dissatisfaction with the 1968 Agreement led to changes in 2014. The historical overview of UK experience provides a basis for understanding current UK policy and offers insights for other countries facing similar policy challenges. A critique is presented of UK policy on single source pricing and profitability.