https://orcid.org/0000-0003-1399-5484
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ABSTRACT
In this paper, we study closely the relationship between arms exports, labor productivity and economic growth. Using a connectedness-measurement technology fundamentally grounded in modern network theory, we determine the size and direction of the spillover effects between these three variables. Our findings indicate that shocks from arms exports have direct spillovers over the labor productivity and GDP growth, whereas the reverse is not captured by our data. We also provide a dynamic analysis of the spillovers that confirm the direction of spillovers from arms exports to the other variables. The recent evolution of arms exports from the United States together with the changes in arms exports policy show the timeliness of studying the effects of this particular trade to the rest of the economy.
Acknowledgments
The authors gratefully acknowledge useful comments and constructive suggestions by anonymous referees. The usual disclaimer applies
Disclosure statement
No potential conflict of interest was reported by the author(s).
Notes
1. US arms exports accounted for 7% of total US exports in 2016 (2018 World Military Expenditures and Arms Transfers report).
2. See Yeung (Citation2010) for an exception.
3. Conventional Arms Transfer (CAT) Policy was revised on 16 July 2018. The main focus of changes is on boosting American jobs and increasing national security. Among the targets: higher competitiveness of US defense firms, but also the care for human rights. Regarding the destinations of the exports, policy instructs not to sell arms where they might be used for human rights violation.
4. Tina Kaidanow, head of the State Department’s Bureau of Political-Military Affairs, said at a Capitol Hill event hosted by the Aerospace Industries Association that the new Arms Transfer Initiative not only ‘bolsters our ability to protect the United States by being a force multiplier for the U.S. warfighter’ but ‘ultimately benefits U.S. industry by driving new innovation and creating high-quality American jobs.’ In Bender B. and Palmeri T. ‘Trump to unleash more global arms sales’, Politico published on 9/29/2017 https://www.politico.com/story/2017/09/29/trump-global-arms-sales-243282.
5. Peter Navarro, former director of the White House Office of Trade and Manufacturing, claimed during a meeting at the Center of Strategic and International Studies that ‘The new Conventional Arms Transfer policy (CAT) works for economic security and national security. If we are able to sell defense systems to our allies and partners, it makes that partner stronger, it makes the region where that partner is more stable. and most important to me, (… .) that’s more jobs right here, good jobs at good wages.’ Economic Security as National Security: A Discussion with Dr. Peter Navarro, 13 November 2018 https://www.csis.org/analysis/economic-security-national-security-discussion-dr-peter-navarro.
6. See Defense Budget Overview (Office of the Under Secretary of Defense (Comptroller) Citation2019).
7. In 2017, the US devoted 43.5% of government R&D expenditures to defense (Sargent Citation2020).
9. For example, Cheben et al. (Citation2018) describe metamaterials with exotic properties like negative permeability and permittivity, super-resolution, asymmetric transmission or invisibility. If they are to be the components of the next generation of optical communication, they will be certainly of interest in military applications.
10. In this framework all variables in the system are subject to shocks simultaneously.
11. Data retrieved from https://fred.stlouisfed.org/series/FYGDP.
12. The US State Department prepares the World Military Expenditure and the Arms Trade (WMEAT) report with data on US arms exports that was also considered to use. However, the information, which is not always in yearly basis, is only available from 1964 to 2017. WMEAT contains value of transfers, therefore, taking account of prices actually paid, although it also includes services, trade orders and small arms trade. In addition, it presents some series discontinuities and different computations. Therefore, we consider TIV series more suitable.
13. Essentially, the test is an augmented Dickey–Fuller test except that the time series are transformed via a generalized least squares regression before performing the test. Elliott, Rothenberg, and Stock (Citation1996) have shown this test has significantly greater power than the previous versions of the augmented Dickey–Fuller test.
14. Results are robust to the choice of the alternative methods for choosing which value of k to use, the minimum Schwarz information criterion or the Ng–Perron modified Akaike information criterion.
15. The peculiarity of the series of arms exports, namely, they represent the transfer of military resources rather than the financial value of the transfer, leads us to consider that, despite the potential of relationships among the different variables, there are not theoretical reasons to be cointegrated in the long run and the proposed VAR analysis would be appropriate. However, we have tested for cointegration status of the data to clarify this aspect.
16. See 1995 US Presidential Decision Directive/ NSC-34 and 2014 Presidential Policy Directive/PPD-27 for further details.
17. Lithuania, Latvia and Estonia intend to triple annual spending on arms and military equipment to $670 million by 2018 from 2014 due to fears of Russia following its annexation of Ukraine’s Crimea region. Reuters, October 2016 retrieved from https://www.reuters.com/article/us-baltics-military/baltics-fearing-russia-to-triple-military-spending-by-2018-report-idUSKCN12J2S4
18. SIPRI (Citation2018).
19. Together with China, Europe, Russia or the Soviet Union.
20. It is worth noting that in cases related to Global Security rather than conflicts the USA made it clear that it was not willing to tolerate embargo violations and committed significant resources to a range of measures both within and outside the UN to improve monitoring and enforcement capacities.