ABSTRACT
According to SIPRI, world defence spending is equal to $1.739 billion in 2017, which represents nearly 2% of the world GDP. Given its economic importance, the field of defence has been investigated by many economists. Defence economics relies on the use of all the economic approaches relative to the defence sector. The first articles published in the field mainly focused on industry (microeconomics), alliance (public economics), arms transfers (international economics) or economic impact (macroeconomics). More recently, the scope has been enlarged to new topics such as civil wars, terrorism or new areas, such as China.
From a methodological point of view, a major difficulty arises when it comes to measure defence output. Indeed defence spending is just a sum of inputs (wages and equipment) but does not give any figure of the efficiency of the allocation process (which is the core of economics). The key issue of “how much is enough” remains involved. As a consequence, defence economic academic literature says little about the main purposes of defence and focus only on the pure economic effects.
This chapter reviews the main methods used by economists in order to evaluate the causes and consequences of the defence sector: narrative approach, theoretical model and econometric analysis. Each method is discussed in length to examine their weakness and forces.
