American Economic Journal:
Economic Policy
ISSN 1945-7731 (Print) | ISSN 1945-774X (Online)
Detecting Illegal Arms Trade
American Economic Journal: Economic Policy
(pp. 26–57)
Abstract
We propose a method to detect illegal arms trade based on investor knowledge. We focus on countries under arms embargo and identify events that suddenly increase or decrease conflict intensity. If a weapon-making company is trading illegally, an event that increases the demand for arms may increase stock prices. We find positive event returns for companies headquartered in countries with high corruption and low transparency in arms trade. We also suggest a method to detect potential embargo violations based on chains of reactions by individual stocks. The presumed violations positively correlate with the number of UN investigations and Internet stories. (JEL D74, F13, G14, K42, L64)Citation
DellaVigna, Stefano, and Eliana La Ferrara. 2010. "Detecting Illegal Arms Trade." American Economic Journal: Economic Policy 2 (4): 26–57. DOI: 10.1257/pol.2.4.26Additional Materials
JEL Classification
- D74 Conflict; Conflict Resolution; Alliances
- F13 Trade Policy; International Trade Organizations
- G14 Information and Market Efficiency; Event Studies
- K42 Illegal Behavior and the Enforcement of Law
- L64 Other Machinery; Business Equipment; Armaments