Hostname: page-component-848d4c4894-p2v8j Total loading time: 0.001 Render date: 2024-05-28T03:55:25.766Z Has data issue: false hasContentIssue false

The Political Economy of Arms Export Restrictions: The Case of Japan

Published online by Cambridge University Press:  09 August 2012

Kobe University,
University of Konstanz,


The export of arms belongs to the most contested issues in democracies. In this article, we examine the economic repercussions of the recent easing of the Japanese arms exports restrictions. We develop a rational expectations argument to understand why some political events increase the income of the arms manufacturers, while other ones reduce it or have no effect at all. Event studies suggest that investors closely observe relevant political developments since stock prices of the six arms manufacturers companies reacted consistently to the announcements and leaks as to whether the arms export restrictions would be lifted or not.

Research Article
Copyright © Cambridge University Press 2012

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Arrington, Aminta (2002), ‘Cautious Reconciliation: The Change in Societal–Military Relations in Germany and Japan since the End of the Cold War’, Armed Forces & Society, 28 (4): 531–54.CrossRefGoogle Scholar
Bechtel, Michael M. (2009), ‘The Political Sources of Systematic Investment Risk: Lessons from a Consensus Democracy’, Journal of Politics, 71 (2): 661–77.Google Scholar
Bechtel, Michael M. and Schneider, Gerald (2010), ‘Closely Watched Summits: How Stock Markets React to Multilateral Diplomacy on the EU Defence Sector’, International Organization, 64 (2): 199223.Google Scholar
Bernhard, William and Leblang, David (2006), Democratic Processes and Financial Markets: Pricing Politics, New York: Cambridge University Press.Google Scholar
Berrebi, Claude and Klor, Esteban F. (2010), ‘The Impact of Terrorism on the Defence Industry’, Economica, 77: 518–43.Google Scholar
Capelle-Blancard, Gunther and Couderc, Nicolas (2008), ‘What Drives the Market Value of Firms in the Defense Industry?’, Review of Financial Economics, 17:1432.Google Scholar
Chaney, Eric (2008), ‘Assessing Pacification Policy in Iraq: Evidence from Iraqi Financial Markets’, Journal of Comparative Economics, 36 (1): 116.Google Scholar
Chen, Andrew H. and Siems, Thomas F. (2004), ‘The Effects of Terrorism on Global Capital Markets’, European Journal of Political Economy, 20: 349–66.Google Scholar
Corrado, Charles J. (1989), ‘A Nonparametric Test for Abnormal Security–Price Performance in Event Studies’, Journal of Financial Economics, 23: 385–95.Google Scholar
Della Vigna, Stefano and Ferrara, Eliana La (2010), ‘Detecting Illegal Arms Trade’, American Economic Journal: Economic Policy, 2 (4): 2657.Google Scholar
Dembinski, Matthias and Schuhmacher, Barbara (2005), ‘Wie Europa dem Rüstungsexport Schranken setzt. Von der Zusammenarbeit europäischer Regierungen zum europäischen Regieren’, Frankfurt/M: HSFK-Report 9/2005, (last consulted 14 July 2010).Google Scholar
Eldor, Rafi and Melnick, Rafi (2004), ‘Financial Markets and Terrorism’, European Journal of Political Economy, 20: 367–86.Google Scholar
Fama, Eugene (1965), ‘The Behavior of Stock Market Prices’, Journal of Business, 38 (1): 34105.Google Scholar
Green, Michael J. (1995), Arming Japan: Defense Production, Alliance Politics, and the Postwar Search for Autonomy, New York: Columbia University Press.Google Scholar
Guidolin, Massimo and Ferrara, Eliana La (2007), ‘Diamonds Are Forever, Wars Are Not: Is Conflict Bad for Private Firms?’, American Economic Review, 97 (5): 1978–93.CrossRefGoogle Scholar
Guidolin, Massimo and Ferrara, Eliana La (2010), ‘The Economic Effects of Violent Conflict: Evidence from Asset Market Reactions’, Journal of Peace Research, 47 (6): 671–84.CrossRefGoogle Scholar
Herron, Michael C., Lavin, James, Cram, Donald, and Silver, Jay (1999), ‘Measurement of Political Effects in the United States Economy: A Study of the 1992 Presidential Elections’, Economics and Politics, 11 (1): 5179.CrossRefGoogle Scholar
Ikegami-Andersson, Masako (1993), ‘Japan: A Latent but Large Supplier of Dual-Use Technology’, in Wulf, Herbert (ed.), Arms Industry Limited, Oxford: Oxford University Press, pp. 320–44.Google Scholar
International Institute for Strategic Studies (2008), The Military Balance 2009, Abingdon: Routledge.Google Scholar
Kastellec, Jonathan P. and Leoni, Eduardo (2007), ‘Using Graphs Instead of Tables in Political Science’, Perspectives on Politics, 5 (4): 755–71.Google Scholar
Kaun, David E. (1990), ‘War and Wall Street: The Impact of Military Conflict on Investor Attitudes’, Cambridge Journal of Economics, 14 (4): 439–52.Google Scholar
Keller, William W. and Nolan, Janne E. (1997/8), ‘The Arms Trade: Business as Usual?’, Foreign Policy, 109: 113–25.Google Scholar
Kerr, Elenora (1917), The Effect of Wars and Revolutions on Government Securities, External and Internal, New York and Chicago: Imbrie.Google Scholar
Kothari, S. P. and Warner, J. B. (2007), ‘Econometrics of Event Studies’, in Espen Eckbo, B. (ed.),Handbook of Corporate Finance Empirical Corporate Finance, Amsterdam: Elsevier/North-Holland, pp. 336.Google Scholar
Lin, Chin-Tsai and Wang, Yi-Hsien (2007), ‘The Impact of Party Alternative on the Stock Market: The Case of Japan’, Applied Economics, 39: 7985.Google Scholar
McGillivray, Fiona (2003), ‘Redistributive Politics and Stock Price Dispersion’, British Journal of Political Science, 33 (3): 367–95.Google Scholar
Niederhoffer, Victor, Gibbs, Steven, and Bullock, Jim (1970), ‘Presidential Elections and the Stock Market’, Financial Analysts Journal, 26: 111–13.Google Scholar
Nihon-Kikai-Kogyo-Rengokai [Association of Japanese Machine Industries] (2005), Buki-kin-yu San-gensoku-no Minaoshi-to Boei-kikai-sangyo-he-no Eikyo-chousa Houkokusyo [A Report on Relaxing the Three Arms Export Restiriction Policy and Effects to DefenceDefense-related Machine Industries], Tokyo: Nihon-Kikai-Kogyo-Rengokai and Japan Forum for Strategic Studies.Google Scholar
Oros, Andrew L. (2008), Normalizing Japan. Politics, Identity, and the Evolution of Security Practice, Stanford, CA: Stanford University Press.Google Scholar
Pekkanen, Saadia M. and Kallender-Umezu, Paul (2010), In Defense of Japan: From the Market to the Military in Space Policy, Stanford, CA: Stanford University Press.Google Scholar
Schneider, Gerald and Troeger, Vera E. (2006), ‘War and the World Economy: Stock Market Reactions to International Conflicts, 1990–2000’, Journal of Conflict Resolution, 50 (5): 623–45.CrossRefGoogle Scholar
Shinoda, Tomohito (2007), Koizumi Diplomacy: Japan's Kantei Approach to Foreign and DefenceDefense Affairs, Seattle: University of Washington Press.Google Scholar
Stigler, George J. and Friedland, Claire (1962), ‘What Can Regulators Regulate? The Case of Electricity’, Journal of Law and Economics, 5 (1): 116.Google Scholar
Zusman, Asaf and Zusman, Noam (2006), ‘Assassinations: Evaluating the Effectiveness of an Israeli Counterterrorism Policy Using Stock Market Data’, Journal of Economic Perspectives, 20 (2): 193206.Google Scholar