SIPRI Yearbook 2007

SIPRI

Armaments, Disarmament and International Security

The Yearbook is SIPRI's annual compendium of data and analysis of developments in security and conflicts, military spending and armaments and non-proliferation, arms control and disarmament. For more on the book and ordering details, visit the Yearbook 2007 site.

Chapter 8. Military expenditure
Petter Stålenheim, Catalina Perdomo and Elisabeth Sköns
SummaryWorld military expenditure in 2006 is estimated to have reached $1204 billion in current dollars. This represents a
3.5 per cent increase in real terms since 2005 and a 37 per cent increase over the 10-year period since 1997. Average spending per capita increased from $173 in 2005 to $184.
World military expenditure is extremely unevenly distributed. In 2006 the 15 countries with the highest spending accounted for 83 per cent of the world total.
The large increase in the USA’s military spending is to a great extent due to the costly military operations in Afghanistan and Iraq. Most of the increase resulted from supplementary allocations in addition to the regular budget. Between September 2001 and June 2006, the US Government provided a total of $432 billion in annual and supplemental appropriations under the heading ‘global war on terrorism’. This increase in US military spending has contributed to the deterioration of the US economy since 2001. Taking both immediate and long-term factors into account, the overall past and future costs until year 2016 to the USA for the war in Iraq have been estimated at $2267 billion.
In 2006 China’s military expenditure continued to increase rapidly, for the first time surpassing that of Japan and hence making China the biggest military spender in Asia and the fourth biggest in the world. Amid intense discussions, Japan decided, for the fifth consecutive year, to reduce its military spending in 2006 and to focus its military budget on missile defence.
In a comparison of government spending priorities between samples of countries in different per capita income groups, the ratio of military spending to social spending was found to be highest in those countries with the lowest per capita incomes. However, between 1999 and 2003, the share of military expenditure in GDP stayed at a constant level in the high- and middle-income country sample and decreased somewhat in the low-income sample. At the same time social spending as a share of GDP increased in the high- and low-income groups and remained relatively stable in middle-income countries.
Petter Stålenheim (Sweden) is a Researcher with the SIPRI Military Expenditure Project.
Catalina Perdomo (Colombia) is a Research Assistant with the SIPRI Military Expenditure Project.
Elisabeth Sköns (Sweden) is the Leader of the SIPRI Military Expenditure and Arms Production projects.
For more on the SIPRI Military Expenditure Project and its publications visit its home page at http://www.sipri.org/contents/milap/milex/mex_about.html.

Chapter 9. Arms production
Elisabeth Sköns and Eamon Surry
Summary
The arms sales of the 100 largest arms-producing companies in the world apart from China in 2005—the SIPRI Top 100—increased by 3 per cent in real terms over the arms sales of the Top 100 for 2004 and by 18 per cent over those of the Top 100 for 2002. US companies dominate the SIPRI Top 100: 40 US firms accounted for 63 per cent of the combined Top 100 arms sales of $290 billion in 2005. Some 32 West European companies accounted for another 29 per cent and 9 Russian companies for 2 per cent. Companies based in Japan, Israel and India, in descending order, accounted for most of the remaining 6 per cent of world arms sales. Four US companies, one British company and one Italian company increased their arms sales by more than $1 billion in 2005 and 11 companies increased their arms sales by more than 30 per cent. Of these, four were Russian companies and five were companies that increased their arms sales in the areas of information technology and services. Most of these sharp increases were the result of acquisitions of other companies (or parts of other companies) rather than of organic growth.
Parts of the US arms industry have benefited substantially from the USA’s post-September 2001 policies, particularly the increased demand for new equipment generated by the military operations in Afghanistan and Iraq. These policies have also stimulated strong growth in government expenditure on homeland security, thereby increasing demand in the broader security industry.
A major factor behind current developments in the arms industry has been the high and rising fixed costs of advanced weapon systems. Companies use mergers and acquisitions to achieve economies of scale, but the increased concentration of production can also lead to reduced competition and thus remove incentives to keep prices down and innovation up.

Elisabeth Sköns (Sweden) is the Leader of the SIPRI Military Expenditure and Arms Production projects.
Eamon Surry (Australia) is a Research Associate with the SIPRI Arms Production Project.
For more on the SIPRI Arms Production Project and its publications visit its home page at http://www.sipri.org/contents/milap/.