Weaponomics: The Economics of Small Arms

The small arms market has received considerable attention since the end of the Cold War. Small arms may be viewed as the specific capital of rebel groups yet no statistical analysis of this market for weapons has yet taken place due to the absence of data. This paper introduces the first effort to quantitatively document the small arms market by collating field reports and journalist accounts to produce a cross-country time-series price index of Kalashnikov assault rifles. The new data is used to quantitatively investigate the nature of the small arms market. A simultaneous equations demand and supply model of the small arms market is developed and empirically estimated to identify the key determinants of assault rifle prices. Variables which proxy the effective height of trade barriers for illicit trade, both within and between countries are consistently significant in weapon price determination. Neighbours’ average military expenditure is also a robust predictor of cheap weapon prices. When controlling for other factors, the collapse of the Soviet Union does not have as large an impact on weapon prices as is generally believed.