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The Home Market Effect In International Arms Trade

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  • Oana Tocoian

Abstract

type="main" xml:id="ecin12220-abs-0001"> 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 (HME), 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 that accounts for differences in demand across countries, and test its predictions using post-Cold War data . ( JEL F1, H5, R1)

Suggested Citation

  • Oana Tocoian, 2015. "The Home Market Effect In International Arms Trade," Economic Inquiry, Western Economic Association International, vol. 53(4), pages 1751-1764, October.
    • Handle: RePEc:bla:ecinqu:v:53:y:2015:i:4:p:1751-1764
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    More about this item

    JEL classification:

    • F1 - International Economics - - Trade
    • H5 - Public Economics - - National Government Expenditures and Related Policies
    • R1 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics

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