Gone with the Winds of Peace: The Regional Economic Effects of Military Base Downsizings and Closures

Abstract

This paper analyzes the economic effects of military base downsizing and closures at the regional level, considering the case of the US military Air Base located at Lajes, in Terceira Island, Azores, Portugal. A Computable General Equilibrium Model is used as a tool to examine these effects, allowing potential sector details and the identification of distributional implications. The results suggest that when no mitigation policies are undertaken, the downsizing process has a small regional effect on GDP but a greater local effect on the island. Imports, as expected, tend to decrease in the cutback scenarios and to increase when specific mitigation policies are considered. The main export gainers are the primary sectors that become more competitive due to factor price decreases. The main export losers are some industrialized products and services. The results provide support for the implementation of mitigation policies, which should be reasonable in both their intensity and focus, since there is a risk associated with these policies. Replenishing the public budget and allowing expenditures according to the current government expenditure structure tends to crowd-out private initiatives, leading to an overall long-term negative effect on the economy.

Keywords: Military base downsizing and closure, computational general equilibrium model, Azores, regional economic effects of military activities

JEL Classification: C38, H56, R13, R29, R58