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Chapter 1 National Security and International Trade: A Simple General Equilibrium Model

In: Contemporary and Emerging Issues in Trade Theory and Policy

Author

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  • Ronald Findlay
  • Mohammad Amin

Abstract

This chapter presents a general equilibrium model that embeds the issue of national security within a two-country Heckscher–Ohlin model of international trade. “National security” is defined as a public good that is an increasing function of a country's own defense expenditure and a decreasing function of the other country's defense expenditure. Defense is a non-traded public good produced by capital and labor, along with two tradable private goods in each country. The model is solved as a Nash equilibrium in defense expenditures and a Walrasian equilibrium for the two traded goods and the factors of production. It is shown that opening to international trade raises defense expenditures in each country since national security is a normal good in each of them. If defense is more capital-intensive than both tradable goods then trade lowers the cost of defense for the labor-abundant country and raises it for the capital-abundant country.

Suggested Citation

  • Ronald Findlay & Mohammad Amin, 2008. "Chapter 1 National Security and International Trade: A Simple General Equilibrium Model," Frontiers of Economics and Globalization, in: Contemporary and Emerging Issues in Trade Theory and Policy, pages 13-24, Emerald Group Publishing Limited.
    • Handle: RePEc:eme:fegzzz:s1574-8715(08)04001-3
    DOI: 10.1016/S1574-8715(08)04001-3
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