Economic Aspects of Arms Trade Offsets

Jurgen Brauer Augusta State University

This paper addresses four sets of questions. First, are arms trade offsets part of normal trade relations or are they in some sense "extra-normal" and, if so, why would that matter? Second, why are arms trade offsets agreed to? There are two aspects to this question: (a) what economic theory would explain offsets? and (b) what are the rationales of buyer and seller when they agree to offsets? Third, are offsets economically efficient? Is social welfare maximized? What is the benefit, net of cost, for whom? In a word, what is the empirical evidence? And fourth, what, if anything, should be done about arms trade offsets?