Arms Export Controls, Subsidies and the WTO Exemption

18 Pages Posted: 9 Jun 2005

See all articles by María D. C. García‐Alonso

María D. C. García‐Alonso

University of Kent, Canterbury

Paul Levine

School of Economics, University of Surrey


Owing to the World Trade Organization (WTO) exemption that allows governments to subsidize arms exports, the arms trade is one of the few remaining areas of trade where we observe export subsidies. This paper examines the effect of arms controls, in the form of licensing delays, on the incentives to subsidize arms exports and conversely the effect of the WTO arms trade exemption on the incentives to break arms control agreements. Our main result is that arms controls and free trade commitments re-enforce each other. Licensing delays reduce the incentive to subsidise and free trade without subsidies reduces the benefits of a unilateral abrogation of arms controls. Transparency actually worsens the Nash inefficiencies at play in that incomplete information leads to lower subsidies and lower arms exports.

Suggested Citation

Garcia-Alonso, Maria Carmen and Levine, Paul L., Arms Export Controls, Subsidies and the WTO Exemption. Scottish Journal of Political Economy, Vol. 52, No. 2, pp. 305-322, May 2005. Available at SSRN:

Maria Carmen Garcia-Alonso (Contact Author)

University of Kent, Canterbury ( email )

Canterbury, Kent CT2 7NZ
United Kingdom

Paul L. Levine

School of Economics, University of Surrey ( email )

Surrey GU2 7XH
United Kingdom
+44 1483 259 380 Ext. 2773 (Phone)
+44 1483 259 548 (Fax)

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