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The Redistributive Effect of Loosening Arms Export Restrictions: An Event Study Analysis of the Japanese Case

12 Pages Posted: 19 Jul 2010 Last revised: 31 Aug 2010

Gerald Schneider

University of Konstanz

Atsushi Tago

Kobe University - Graduate School of Law

Date Written: 2010

Abstract

The export of arms belongs to the most contested issues in many democracies. In this article, we examine the economic repercussions of the easing of the arms exports restrictions that began in Japan after the end of the Cold War with support from the United States. We particularly examine the redistributive effect that the discussion, and eventual implementation, of the policy reforms had on the stock market return of investments in various arms manufacturers. We develop a rational expectations model that examines how investors are influenced by political events and the discussions about them. We then examine at the firm level with the help of a specific technique developed in financial econometrics, the so-called event study approach, how the returns changed during the period in which the softening of the arms export restrictions was discussed. The preliminary statistical analysis shows that investors are closely observing relevant political developments and for instance that Shinmaywa, the producer of an amphibian aircraft able to start and land in water, reacted consistently to the policy changes. However, this effects has somehow eroded as the market recognized that the company must invest more before the aircraft can really be exported.

Keywords: Political economy, event study, redistribution, defence industry

JEL Classification: H57, N25

Suggested Citation

Schneider, Gerald and Tago, Atsushi, The Redistributive Effect of Loosening Arms Export Restrictions: An Event Study Analysis of the Japanese Case (2010). APSA 2010 Annual Meeting Paper. Available at SSRN: https://ssrn.com/abstract=1643812

Gerald Schneider (Contact Author)

University of Konstanz ( email )

Fach D-144
Universit├Ątsstra├če 10
Konstanz, D-78457
Germany

Atsushi Tago

Kobe University - Graduate School of Law ( email )

2-1 Rokkodai, Nada-ku
Kobe 657-8501
Japan

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