The Gravity of Arms

Abstract

The aim of this paper is to investigate the determinants of international arms transfers in a gravity model framework. By distinguishing between the decision to export arms (extensive margin) and the value of the arms exported (intensive margin), while also considering its interdependence, is what differentiates this paper from previous research. A theoretically justified gravity model of trade augmented with political and security motives is estimated using a two-stage panel data approach for 104 exporting countries over the period from 1950 to 2007. In addition to the usual gravity variables related to the economic mass of the trading countries and the trade cost factors, the model is extended with political and security factors. The level of democracy in both trading partners, political differences between trading partners and voting similarity with the United States in the UN General Assembly of the countries engaged in trade are the main political factors, whereas the existence of conflicts, military pacts, and embargoes are taken as security motives. The key result indicates that both political and security motives are an important determinant of an arms trade, but their effects on the extensive margin of exports (the decision to order a transfer) differs from their effect on the intensive margin (average value of exports). Moreover, the relative importance of the factors under study has changed since 1989. In the post-cold war period, countries that are less democratic are more likely to export arms, military pacts are less relevant and embargoes play a role.