Arms Trade and Conflict Resolution: A Trade-Theoretic Analysis
We construct a trade-theoretic model for three open economies two of which are in conflict with each other and the third exports arms to the two warring countries. War efforts — which involve the use of soldiers and military hardware — and the price of arms are determined endogenously. The purpose of war is the capture of land, but the costs are that lives are lost and production sacrificed. We examine the effect of foreign aid and a tax on arms exports on war efforts.Whereas foreign aid to the warring countries is likely to increase war efforts, a tax on arms exports is likely to have just the opposite effect. The endogeneity of arms price helps to derive the optimal level of such a tax.
KeywordsProtective Nature Small Open Economy Substitution Effect International Price Revenue Function
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