America and the Arms Trade: From Subsidies to Rent Extraction

34 Pages Posted: 15 Jul 2012 Last revised: 15 Aug 2012

Date Written: 2012

Abstract

This paper introduces a theory explaining the circumstances under which the United States takes advantage of its defense industrial market power and globalization’s efficiency gains to collect economic rents and under which it will instead forgo these rents to achieve geopolitical gains. In this bargain, the United States distributes much of the financial gains from collaboration to its partners in exchange for their joining an American-dominated global arms network, giving up ambitions to act autonomously in defense, and foregoing sales to regimes that threaten American security. The second contribution is to test, for the first time, the many competing theories on defense globalization using statistical analysis of a large time series cross-sectional data set, which measures the financial premium paid (or subsidy received) by US arms customers from 1970-2007. While the paper finds support for its theory, it also shows that large US budgets lead to inflated export prices, and that US market power appears to be eroding.

Suggested Citation

Caverley, Jonathan and Kapstein, Ethan B., America and the Arms Trade: From Subsidies to Rent Extraction (2012). APSA 2012 Annual Meeting Paper, Available at SSRN: https://ssrn.com/abstract=2106982

Jonathan Caverley (Contact Author)

Northwestern University

Ethan B. Kapstein

Independent

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