Linear and Non-linear Estimation of the Explanatory Factors of Arms Production in the World from the Perspective of Supply and Demand

Document Type : Original Article

Author

Ph.D. Candidate in Economics, Faculty of Economics and Administrative, Lorestan University, Khoram Abad, Iran

Abstract

Using the statistical information of the top 100 arms-producing and military services companies in the world during 2002-2021, this study has estimated the linear and non-linear factors that explain the arms production in the world from the perspective of supply and demand. For this purpose, by using 40 companies (belonging to 10 countries of the world) from among the top 100 arms-producing companies in the form of a balanced panel model, the effect of arms demand including national defense spending, export and import of arms and gross domestic product (scale variable) on arms supply and production have been investigated using the Panel Smoot Transition Regression (PSTR) model and new panel cointegration estimators. The estimation results of the PSTR model, by considering the national defense expenditures as a transition variable in a two-regime model, show that in both regimes, national defense spending, arms exports, and GDP had a positive effect on the arms sales. The arms import variable also had an insignificant effect in the first regime and a positive effect on the arms sales in the second regime, which indicates that imported arms and domestic production are complementary. The results of linear estimation of the model using the Continuously Updated and Fully Modified (Cup-FM) and Continuously Updated and Bias-Corrected (CUP-BC) estimators also show that, on average, a one percent increase in national defense spending, arms exports, and gdp, respectively, increases arms sales in 40 selected company by 0.92, 0.11 and 1.12 percent.

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Main Subjects

References

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Defensive Researches and Management
Volume 23, Issue 103 - Serial Number 103
Spring 2024
June 2024
Pages 137-99

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  • Receive Date: 17 December 2023
  • Revise Date: 25 January 2024
  • Accept Date: 26 June 2024

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