A Computational Analysis of the Effects of Reductions in US Military Expenditures

Abstract

With the end of the ‘Cold War’ and attendant fragmentation of the former Soviet Union, Soviet military influence no longer poses a grave threat to international security. The destruction of Iraq’s military capabilities and the opening of the Israeli-Arab dialogue may also have served to reduce the potential for large-scale conflict in the Middle East. The confluence of these remarkable changes suggests that there may now be considerable scope for reduction in military expenditures in the USA especially, as well as in other major countries. It is in this light that we use the computational general equilibrium (CGE) Michigan Model of World Production and Trade to analyse the impact of a 25 per cent unilateral reduction in US military spending.²

Financial assistance was provided in part by a grant from the Ford Foundation in support of a programme of research in trade policy in the Institute of Public Policy Studies at the University of Michigan. We wish to thank Jon D. Haveman for computational assistance and Judith Jackson for typing and editorial assistance.