Chapter 30 Arms Industries, Arms Trade, and Developing Countries

This chapter discusses developing (non-high income) states' participation in the production and trade of parts or whole units of major conventional weapons, their integration into a transnationalized global arms industry, and the underlying industrial prerequisites that make that participation and integration possible. Drawing on the vertical boundaries of the firm literature, the chapter provides a theory that explains some aspects of post-Cold War shifts in the composition and location of arms production. The chapter further discusses characteristics of the small arms and light weapons industry. A highly lethal industry with far-ranging adverse effects on public health, education, and institutions of law and order and therefore on work incentives and investment climate, it is suggested that the horizontal boundaries of the firm literature, especially the product-cycle hypothesis, may explain certain features of the spacial and temporal diffusion of small arms production, technology, and supply. Newly emerging literature on small-arms demand is also discussed. Furthermore, the chapter examines the widening presence of non-high income states in the production of weapons of mass destruction. Vertical contracting and R&D/patent-race literatures are applied to the case of nuclear weapons. Major conclusions of the chapter include that data sources are poor, that arms production and trade theory is underdeveloped, and that although non-proliferation regimes may have slowed weapons proliferation, they have failed to stop it. We observe industry entry in all weapons categories and in future may expect to see further increases in industry participation by non-high income states, should they choose to do so. This is the natural consequence of the gradual development of non-high incomes states' production capacities. We also observe, however, that states sometimes exit the arms industry or choose not to participate in it, despite their capacity to do so.