Academic journal article The Lahore Journal of Economics

Is There an Arms Race between Pakistan and India? an Application of GMM

Academic journal article The Lahore Journal of Economics

Is There an Arms Race between Pakistan and India? an Application of GMM

Article excerpt

(ProQuest: ... denotes formulae omitted.)

1. Introduction

Countries allocate their defense budgets keeping in view several considerations. First, the resources spent on defense could be utilized for other purposes, such as education, health, infrastructure, or social welfare. Second, excess defense spending can hinder economic growth by diverting resources or investment away from potentially more productive uses. Third, there are consequences for regional security: high defense spending and arms acquisition in one country may provoke a similar response from its neighbors and rivals. Even neighbors with no particular fear of attack may be pressurized by their defense establishment to match new technology for reasons of global prestige. Such pressures can lead to regional arms races.

Such concerns have raised the issue of defense spending and arms races among academics and policymakers. The global arms race is the focus of considerable campaigning, tactical and legislative attention, and academic study (see, for example, Anderton, 1989; Andreou & Zombanakis, 2010; Dalton & Tandler, 2012; Dunne, Nikolaidou, & Smith, 2005; Kollias & Paleologou, 2002; Mohammed, 1992; Öcal, 2003; Tahir, 1995; Ward, 1984). While it is an important function of the state to provide and maintain peace in the country by enhancing its defense capabilities in order to safeguard national interests, the question is what budget the government should allocate to arms acquisition.

The international relations literature lays out the phenomenon of the arms race in the context of security dilemmas. An arms race is considered the competition between two or more entities to accumulate weapons, armed forces, advanced military technology, and military might. It is the competitive, resource-constrained, dynamic process of interaction between two states or coalitions of states in their acquisition of weapons (Brito & Intriligator, 1995).

The arms-race issue has great importance for developing countries such as Pakistan and India. Both allocate an ample share of their budgets to defense, given their internal and external security threats. Over the years, the Indo-Pakistan arms race has become an important area of research (see Öcal, 2003; Phadke, 1988; Yildirim & Öcal, 2006). Both countries have nuclear capabilities with vital geopolitical and strategic positions, which, arguably, is a form of deterrence to both rivals. This makes it very important to investigate the arms race between two countries that also face very large budget deficits and considerable poverty.

While Sheikh and Chaudhry (2013) investigate the overall determinants of defense expenditure in India and Pakistan (including its economic, political, strategic, military, moral, and psychological aspects), this paper focuses on the military angle under the binary Richardson model. Section 2 describes the classical Richardson model of arms races. Section 3 presents an empirical review of arms-race studies on Pakistan and India. Section 4 presents our methodology and specification of the Richardson arms-race approach. Section 5 discusses the model's results and Section 6 concludes the paper.

2. The Richardson Arms Race Approach

Richardson developed a mathematical model of the arms race in 1960, which showed the defense expenditure patterns of rival nations in an action-reaction framework. It was a seminal study investigating arms races between military rivals. Richardson used two differential equations to explain the arms race. In the classical arms race or Richardson model, each country's weapons acquisition or defense spending is a function of both countries' weapons acquisition or defense spending. The model assumes that each country is a single integrated actor and there is a single homogeneous weapon. A typical Richardson model, as shown by Dunne, Nikolaidou, and Smith (1999), is given by two differential equations:

... (1)

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