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THE HOME MARKET EFFECT IN INTERNATIONAL ARMS TRADE
Author(s) -
Tocoian Oana
Publication year - 2015
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1111/ecin.12220
Subject(s) - economics , monopolistic competition , competition (biology) , international economics , market size , supply and demand , international trade , production (economics) , international market , microeconomics , monopoly , ecology , biology
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)