ABSTRACT
Since the end of the cold war there exists considerable scope for reducing military expenditures. It is said that the peace dividend opens a range of opportunities for both rich and poor nations. For rich nations, it is a chance to direct more resources to their own social problems and to poorer countries. For the developing countries and Eastern European countries it is an opportunity to invest more in the health of their people, their infrastructure and industries [UNDP, 1992:84-7]. This study aims at analysing the impacts of a reduction in military spending on different regions and sectors. In particular it aims to investigate which sectors benefit and which sectors lose the most when rearranging this type of government expenditure. To analyse these effects we use a computable general equilibrium model (CGE) which is inspired by the Michigan model of world production, trade and employment.1 We elaborate this large linearised model by using a general two-stage dynamic formulation that allows us to redistribute real capital between industries.
