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.     

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.     

EFFECTS OF MILITARY SPENDING ON THE PROFITABILITY OF SPANISH DEFENCE CONTRACTORS

The traditional view of the defence industry obtaining large profits from contracts with the Ministry of Defence relies on several assumptions. Among these are the use of such arrangements as an instrument of industrial policy, the strong market power enjoyed by prime contractors, and the inefficiency encouraged by the sector. The findings show that defence contracts have a positive effect on profits, as well as the prizes for innovation and the market power enjoyed by some defence subsectors.     

A PRODUCTIVITY AND EFFICIENCY ANALYSIS OF THE SECURITY AND DEFENCE TECHNOLOGICAL AND INDUSTRIAL BASE IN SPAIN

This study analyses the performance of the productivity of the main industrial subsectors composing the security and defence technological and industrial base (SDTIB) in Spain from 1996 to 2009. Accordingly, we have used the non-parametric data envelopment analysis and bootstrapping techniques to compute Malmquist productivity indexes that allow us to split productivity growth into efficiency change and technical progress. The results obtained show productivity improvement in the SDTIB as a whole due mainly to advances in technology and to a lesser extent to the contribution of technical efficiency. The bootstrap approach yields further evidence, as for many cases, productivity growth or decline, is not statistically significant. This is the first time a study of this kind has been carried out on the production process of this sector in Spain.     

ACCRUAL BUDGETING AND DEFENCE FUNDING: THEORY AND SIMULATIONS

This paper explores the impact of moving to accrual budgeting on resources allocation in defence. Standard defence budgeting and investment models are used to assess the theoretical implications of accrual budgeting. In addition, a number of simulations are conducted to assess the long-term implications of moving to accrual accounting and budgeting. The result of the simulations shows that changes to deployed operations and other operational shocks will have manageable impacts on readiness but systematic shocks associated with defence unit prices, procurement policies and defence specific inflation will put considerable strain on the defence department's flexibility.     

Specialization in defence forces

The choice between balanced and specialized defence forces depends on the technology of defence output (e.g. whether a force scope multiplier is present), the existence of scope and scale economies, the platform customization costs and, of course, the level of defence budgets. Minimum force element levels (thresholds), and scale economies facilitate specialization as opposed to scope economies (e.g. platform‐sharing), scale diseconomies and the force scope multiplier (e.g. defence weakest‐link technology). When a balanced force is not optimal, the option value of a non‐optimally maintained force element must also include the opportunity cost arising from suboptimal force elements. Shrinking defence budgets may produce two surprising phenomena. If some force elements are shut down as a result of thresholds, the surviving ones may increase in platform numbers as well as enjoying closer‐to‐most‐desirable platforms. Furthermore, if heritage force elements are shut down within the budget contraction environment, overall defence capability might rise.     

Guns for Butter? Empirical Evidence from China

Abstract

This study examines the causal nexus between defence spending and education expenditure in China using the bootstrap Granger full-sample causality test and sub-sample rolling window estimation. The full-sample result indicates that there is no causality between defence spending and education expenditure. By adopting a time-varying rolling window approach to revisit the dynamic causal relationships, this article identifies a negative unidirectional causality running from education expenditure to defence spending. The finding suggests that it is the education expenditure crowds out defence spending in China rather than reverse. No causality is demonstrated from defence spending to education expenditure, indicating that an increase in military spending will not crowd out expenditure on education. The results could be partly explained by that the education expenditure in China is below the requirement of corresponding economic growth, urging for more financial budget. Whereas the findings support a negative trade-off between defence and education expenditures, they refute the theory of ‘guns for butter’.     

Capable Companies or Changing Markets? Explaining the Export Performance of Firms in the Defence Industry

The paper presents an analysis of the factors explaining the export performance of firms in the defence sector. We focus on the case of Norway, and make use of two complementary methodologies: the first is based on econometric firm-level data analysis for the whole population of defence companies, and the second is based on qualitative case study research on the three most important defence export products (weapon stations, ammunition and electronics). Our empirical results highlight the importance of four major success factors for exporting firms: (1) the participation in offset agreements; (2) the ability to focus on their set of core competencies; (3) their R&D activities and interactions with the public S&T system; and (4) demand opportunities and, relatedly, user-producer interactions.