The Economics of Small Arms Trade

This thesis investigates the trade in firearms in both its legal and illegal dimensions. While academic literature on conflicts in general and on Defense procurement is vast, little has been done, from an academic perspective, in the field of the small arms trade and many of its theoretical and empirical aspects have yet to be explored. This is even more the case for issues related to ammunition which have been excluded from all international arms control regulations and have been overlooked by academic research despite their significance: as the popular expression goes “guns don’t kill people, bullets do”. Each chapter of this thesis focuses on a different aspect related to the trade in small arms or their ammunition, contributing to recent efforts to investigate the small arms trade using economic theory and overlooked by academic research despite their significance: as the popular expression goes “guns don’t kill people, bullets do”. Each chapter of this thesis focuses on a different aspect related to the trade in small arms or their ammunition, contributing to recent efforts to investigate the small arms trade using economic theory and econometric tools.The focus of the first chapter is the illegal trade. In particular, the chapter explores the impact of the illicit trade in small arms during civil war when an arms embargo is enforced in the relevant country. Starting from traditional conflict theory, and in particular from the literature on appropriative conflicts, I create a model that demonstrates how the presence of an illicit channel of small arms supply alters the embargo’s effect. This distortion generates an asymmetry that favors one party, influencing the outcome of conflict. The second chapter focuses on the legal trade. In particular, I analyze the procurement of ammunition from a transparency and competition perspective. Through the analysis of data specifically collected for the purpose of the study, this chapter proves that the ammunition market does not fit within the theoretical framework designed by the traditional Defense procurement literature and indentifies the main determinants that shape the ammunition market. In addition, this chapter highlights the substantial limitations that emerge from the European regulatory regime for Defense procurement when applied to ammunition. The third chapter focuses on the nexus between the legal and illegal markets: compliance with international arms control regulations designed to tackle the negative externalities resulting from small arms proliferation and misuse. In particular, this chapter focuses on the implementation of a very specific measure included in the UNFP that is: the requirement to mark firearms at the time of import. I create a model that describes how the probability of compliance with such measure can be predicted with the use of relevant determinants. I then formulate, and test, a set of hypotheses that illustrate the correlations between the probability of compliance and the determinants used as well as the correlation between compliance and the negative externality associated with firearms. States are generally reluctant to report publicly on production, exports and import of firearms, even if legally conducted, and data on illegal trade is even more difficult to obtain. Due to this lack of public data available on small arms, all datasets used in this thesis have been constructed through dedicated research activities, including the review of all contract bulletins published by the Italian Department of Defense in the period 2005-2009 to obtain useable data on ammunition procurement and by developing and conducting a global survey to assess the implementation of current firearms control measures related to import marking.