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Arms build‐up and arms race in optimal economic growth
Author(s) -
Larrosa Juan M. C.
Publication year - 2016
Publication title -
international journal of economic theory
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.351
H-Index - 11
eISSN - 1742-7363
pISSN - 1742-7355
DOI - 10.1111/ijet.12087
Subject(s) - arms race , production (economics) , economics , harm , deterrence theory , consumption (sociology) , race (biology) , capital (architecture) , growth model , microeconomics , political science , political economy , law , history , social science , botany , archaeology , biology , sociology
I analyze a model of strategic interdependence between two economies linked by investments in defensive capital for deterrence purposes. I adapt a two‐agent dynamic setting where weapon production affects consumption. Individually both economies determine their balanced growth path by taking this interdependence into account in different grades of awareness. I associate two types of equilibria with internal or external determinants for defense production analogous to scenarios of arms build‐up or arms race. I find that a defense sector is compatible with economic growth but a tight arms race can harm growth.