Chapter 6

Defense Economics

Keith Hartley

6.1 Introduction: the Scope of Defense Economics

Defense economics is a relatively new field within the discipline of economics. It focuses on the economic aspects of defense, conflict, disarmament, and peace (or the economics of war and peace). Even with the end of the Cold War, nations have continued to allocate scarce resources to defense involving the sacrifice of alternatives such as spending on hospitals and schools (the classic guns vs. butter tradeoffs or choices among missiles, schools, and hospitals). Nor have conflicts ended. Since 2000, there have been major conflicts in Afghanistan, Iraq, between Israel and Palestine, and the “War on Terror.”

Defense economics analyzes a variety of important policy issues. Examples include the size of defense budgets, their efficiency, and the economics of procuring military equipment and personnel. Other areas include the economics of arms races, military alliances, national defence industries, arms exports, disarmament, peace, and the peace dividend. More recently, defence economists have analyzed conflicts, civil wars, revolutions and terrorism (Sandler & Hartley, 1995, 2007; Tisdell & Hartley, 2008, Chapter 17).

6.2 World Defense Spending

The magnitude of world military spending from 1990 to 2007 is shown in Table 6.1. Since the end of the Cold War in 1990, world military spending in real terms has increased by almost 7%. There were increases in most major regions of the world, especially ...

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