Trade Liberalization and Defence in Developing Economies – Theory, Empirics and Application of Artificial Intelligence

Abstract

The unending debate of the economic effects of defence expenses on the economy continues to grow with no consensus and gained currency especially in the era of globalization. Developing and emerging nations, in the presence of liberalized world, are looking to strengthen their defence sector by their own strength. Producing defence-related goods in their own nations has been becoming quite popular among these nations. In this study, by the help of Granger causality test for panel data of these nations over the period of 1995-2020, we have seen that different trade policy measures have impact on the way o functioning of defence sector in these nations. Ss the empirical study was not enough to get the vivid idea about the alternative policies on defence sector as well as on the other sectors of the economy, we have followed theoretical study as well. In the present paper, for performing the theoretical study, we have divided the economy in two broad categories, each categories having two sectors--- The Consumers’ World (TCW) having two sectors: consumer goods producing export sector and consumer goods producing import competing sector and The Defence World (TDW) having two sectors: defence service producing sector which buys equipments and arms from its equipment and arms producing sector. With the help of four-sector general equilibrium trade theoretic framework, we have made an attempt to see the effects of an increase in defence-related capital on rest of the sectors of the economy along with the effects of a reduction in the tariff on the import competing sector. From such set up we have found that an increase in the defence-related capital and a fall in the tariff, due to liberalization, have same effects. Both measures increase the output of defence service producing sector, its equipment-supplying sector, consumer goods producing sector but reduces that of import competing sector.