Globalisation in the defence industry: An exploration of the paradigm for us and European defence firms and the implications for being global players

This paper explores some of the key issues associated with the restructuring of the defence industry. A comparison is made between the US and the European Defence Industrial Bases in terms of the drivers for change and the paradigms within which change has taken place. Having shown that some very important differences exist, the paper then explores the approaches that have been adopted for industry consolidation and references them to the academic literature on mergers and acquisitions (M&As) and strategic alliances (SAs). Given that most of the key defence players recognise the need to be global players, the paper presents an argument that the European firms’ experience of operating with a wide range of forms of corporate alliance will serve them in good stead for operating on a global defence scale. US firms, in contrast, have focused largely on M&A activity.     

Alternative models of Greek defence expenditures

This paper models and estimates Greek defence spending over the 1950–1989 period. It employs the Stone‐Geary welfare function and estimates levels of defence expenditures by the Engle‐Granger two‐step procedure. The Dickey‐Fuller test regression for cointegration is specified in terms of the significance of additional augmentations. The Deaton‐Muellbauer functional form is then employed and an estimating equation for the expenditure share of defence is derived. This specification is compared with the levels equation through a number of non‐nested tests involving model transformation.     

Defence R&D expenditure: The crowding-out hypothesis

The impact of defence expenditure on the economy has been widely studied through different types of models. However, the results from these studies have not reached definitive conclusions, and have left a gap in the analysis of the impact of defence R&D expenditure at the economy level. Defence R&D has specific characteristics, which lead to market failures: public good, high risk and uncertainty, national security. Also, defence R&D creates two types of externalities: negative (crowding-out), and positive (spin-off). Crowding-out is the major economic debate about defence R&D. This paper analyses the crowding-out hypothesis by applying three types of models for the UK case: supply, demand, and demand-supply models. From these three models the most reliable is chosen and applied to the individual cases of France, Germany, Japan and USA. The paper also reports the results for the pooled data of these five countries, and for four error component models. The results from estimating such models shed light on the defence R&D crowding-out hypothesis.     

The Effects of Defence Spending Reductions: A CGE Estimation of the Foregone Peace Dividend in the Case of Greece

With the collapse of bipolarity and the end of the East-West armaments race, defence budgets have shrunk and military expenditures across many countries have fallen, opening-up the prospect of potential beneficial economic spin-offs. In the case of Greece, a country with a higher than average defence burden, military spending has not exhibited similar downward trends as it has done in other members of NATO and the European Union. The paper, using a Computable General Equilibrium model, estimates through simulations the effects on the Greek economy had reductions in current defence spending been equal to the NATO average. The results from the CGE estimations suggest that a shift of expenditure from defence into non-defence public spending would have an appreciable beneficial impact.     

TERRORISM: FACTS FROM FIGURES 1

If international terrorism is on a rising trend, an important source of confirmation or refutation of this is time‐series data on terrorist activity. Using chiefly data collected by the RAND/MIPT consortium we show using basic statistical analysis that in the period 1968–2005 the yearly number of all international terrorist incidents shows no trend over time, but fluctuates year on year in a random manner. On the other hand some indicators do show a definite trend over time, principally the steady rise in the number of incidents that are death‐dealing in nature. A further conclusion is drawn, showing that the proportion of these incidents leading to deaths above a given level is virtually fixed.     

Using the Feder-Ram and Military Keynesian Models to Examine the Link Between Defence Spending and Economic Growth in Sri Lanka

This study uses the Feder-Ram model in conjunction with the military Keynesian model to examine the nexus between defence spending and economic growth in Sri Lanka. We find that the Keynesian aggregate demand model is better suited to analyse the link than the Feder-Ram model for the case of Sri Lanka. Based upon our results we expect a higher economic growth rate in Sri Lanka if more public resources are diverted from the defence to civilian sectors of the economy, now that the war between the government and separatist guerrillas has come to an end. However, recent post war events cast doubt upon whether a diversion of sources from military to non-military spending will actually occur. We conclude that the sanguine predictions of our economic analysis are entirely dependent upon the political decisions of the Sri Lankan government for their realization.     

‘Fighting for peace’

In Africa, most of the present conflicts are civil, intra-state wars where belligerent groups use guerrilla tactics to achieve various political, economic or ideological objectives. The atrocities and the effect of these on-going wars on innocent civilians, human suffering, poverty and development are beyond comprehension. Not surprisingly, the majority of current peace operations are in Africa, with more than 70 countries contributing forces to these conflict zones. On the continent, South Africa has come to assume a leading role in peace operations and is now a major troop-contributing country to UN and AU missions. In the past 11 years, the South African National Defence Force (SANDF) has taken part in no fewer than 14 peace missions. This article provides a brief background of the conflicts in Burundi, the Democratic Republic of Congo (DRC) and Sudan, the different United Nations (UN) and African Union (AU) mandates under which peacekeepers had to operate as well as their objectives, and the extent of South Africa's involvement in the various missions. In the last section, the major challenges, that these operations have posed are highlighted.     

Swedish–Finnish naval cooperation in the Baltic Sea: motives,prospects and challenges

Recently, Finland and Sweden decided to substantially deepen their defence cooperation and this project involves creating a bilateral standing Naval Task Group (SFNTG). The present article aims at examining the deepening naval cooperation between Finland and Sweden from a regional integration perspective, focusing on its motives, current challenges and future prospects. Driven by perceptions of common challenges and desires for cost-effectiveness, and strengthened by recent successes on sea surveillance and a combined Amphibious Task Unit, the bilateral project has considerable potential to achieve success. To fulfil its objectives, substantial legal changes in both countries are required to allow the use of force on each other’s territorial waters. To cater for the requirement of not conflicting with EU, NORDEFCO or NATO cooperations, the bilateral Task Group must operate according to NATO standards and by using English as the language in command and control. The costs of adjusting the naval units to NATO’s technical requirements are far from negligible and this issue still remains to be solved. If Finland and Sweden manage to incorporate new policies, common structures and common organisational norms among their navies, an even deeper integration, as in Belgium and the Netherlands, are conceivable.     

Defence budgets in the post-Cold War era: a spatial econometrics approach

This paper examines the determinants of national defence budgets in the post-Cold War era employing a spatial econometric framework. Using data for 124 countries over a 16-year time period, I examine spatial relationships in defence spending to investigate how countries account for the military spending of other countries when setting their budgets. Using specially developed weighting matrices, the regression results indicate that defence budgets are positively spatially correlated. These results provide support for the use of ‘external’ factors when examining defence budgets over this time period. The importance of a country’s spatial location when setting its budget is further examined through the identification of regions of high and low defence spending.