Chair in Defence Economics - IHEDN

Public opinion and determinants of defence spending in France

Economic factors play a crucial role in explaining French military spending. Sensitivity to strategic factors (measured by alliance membership or conflicts in the world) should also be emphasised, although to a lesser extent. We also show that equipment expenditure is more sensitive to budgetary constraints than operating expenditure.

The DICoD publishes opinion polls on defence. On this basis, it is possible to assess the French people's willingness to pay for defence and to explain the determining factors. It appears that economic and strategic factors are crucial.

It is also possible to analyse the social representation of defence and its relationship with budget allocations for defence activities (e.g. external operations), particularly among students. Results obtained from a population of students show that the social representation of defence is structured around the notions of «army», «protection» and «security». These concepts make direct reference to the purpose of the armed forces (cf. Order no. 59-147, Jan. 1959). What's more, in the event of a possible increase in the defence budget, students would give priority to the budget item for defence innovation (with civilian spin-offs) over that for external operations and nuclear deterrence (which are, however, at the heart of France's defence strategy, according to the 2013 White Paper and the 2017 Strategic Review).

Economic impact of defence spending

Based on a study of the effects of military spending on private investment in France, for the period from 1980 to 2010, we show that military spending crowds out private investment, a result commonly accepted in the literature. However, if we disaggregate defence spending into operating and capital expenditure, we find that operating expenditure crowds out private investment, but capital expenditure favours it.

As a result, there is a form of complementarity between private investment and defence spending.

When analysing the impact of defence spending on general economic activity (GDP), it also appears that defence equipment spending has a positive effect on GDP, whereas operating expenditure has no significant impact, so that equipment spending is the main vector for explaining positive macroeconomic effects. Another explanation lies in the central role played by defence R&D in the innovation process and in the performance of defence companies. SIPRI has launched a methodological study of its defence spending data. These data have been used for an analysis of EU countries, for which we show that the effects are different depending on whether or not they produce military equipment. A summary of the main findings of the literature shows that, for many countries, the economic impact is positive.

Finally, work has been carried out on the local impact of defence spending, particularly on the impact of the geographical reorganisation of the Armed Forces from the late 2000s onwards. These reorganisations have not been without consequences for the areas affected, so the Ministry of the Armed Forces has provided financial support for the most vulnerable areas. Contrary to what was highlighted in a study on the subject by the Cour des Comptes, the results suggest a form of consistency in the allocation of public spending at departmental level. In addition, the defence industries have also helped to offset job losses associated with the reorganisation of the armed forces, particularly in certain areas that are particularly vulnerable from a socio-economic point of view.

Measures of economic impact and method

In the current context of high public indebtedness, budgetary constraints and the search for efficiency in public spending, made even worse by the health crisis, studies into the economic impact of different activities or projects are multiplying. This issue affects all types of expenditure (automotive industry, culture, environment, defence, etc.) and all Western countries.

For this reason, the Chair has reviewed the methods available for measuring the economic impact of defence, presenting the advantages and limitations of each method (short-term impact using input-output models, impact using data by branch or sector, impact using individual company data or long-term impact).

Arms exports

As part of the Chair's annual conference and first newsletter, we analysed the role of economic factors in the French position on arms exports.

The recent growth in exports can be explained by political and strategic factors, as well as economic factors, all of which are interdependent. The DTIB is considered to be a strategic and structuring sector for the French economy. Defence companies account for a significant proportion of public investment, research and exports.

They employ a significant number of skilled personnel and perform well in terms of added value and exports. Exports help to alleviate certain economic constraints (rising costs, falling national demand over the long term, falling direct funding for defence R&D, etc.), thereby ensuring both strategic and budgetary autonomy. More generally, exports are an important issue for countries with a DTIB.

Other work has involved assessing recent arms export performance in relation to past exports. It appears that the situation observed since 2012 is not particularly exceptional.

Another analysis consists of assessing the role of arms exports on the stability of France's client countries. The hypothesis is that stability can be measured by the intensity of civil conflicts. The results suggest that French exports do not have a destabilising influence on the intensity of conflicts, unlike arms exports from other countries. This result can be explained by two complementary analyses: France selects its customers carefully and the arms exported appear to be defensive in nature.