The Home Market Effect in International Arms Trade

Economic Inquiry, Volume 53, Issue 4, pages 1751–1764, October 2015

Claremont McKenna College Robert Day School of Economics and Finance Research Paper

34 Pages Posted: 18 Apr 2016 Last revised: 30 May 2016

See all articles by Oana Tocoian

Oana Tocoian

UC San Diego; Claremont McKenna College - Robert Day School of Economics and Finance

Date Written: October 1, 2015

Abstract

I show that military spending contributes to international arms proliferation through a push effect: large demand encourages production growth in the domestic market if transport costs are non-negligible. Under increasing returns to scale, the country can then supply weapons on the global market at low prices. This is a manifestation of the home market effect, which states that countries with higher demand for a differentiated good will be net exporters of that good. I construct a monopolistic competition model of international trade which accounts for differences in demand across countries, and test its predictions using post-Cold War data.

Keywords: home market effect, arms trade, military expenditure, economic geography, government procurement

JEL Classification: F1, H5, R1

Suggested Citation

Tocoian, Oana, The Home Market Effect in International Arms Trade (October 1, 2015). Economic Inquiry, Volume 53, Issue 4, pages 1751–1764, October 2015; Claremont McKenna College Robert Day School of Economics and Finance Research Paper. Available at SSRN: https://ssrn.com/abstract=2765877

Oana Tocoian (Contact Author)

UC San Diego ( email )

9500 Gilman Drive
Mail Code 0534
La Jolla, CA 92093-0534
United States

HOME PAGE: http://www.oanatocoian.com

Claremont McKenna College - Robert Day School of Economics and Finance ( email )

500 E. Ninth St.
Claremont, CA 91711-6420
United States

HOME PAGE: http://claremontmckenna.edu/pages/faculty/OTocoian/

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