Arms sales to developing countries | The Economist - 1 views
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Julius Baldauf on 04 Sep 12We see in the chart that in developing countries arms are considered a normal good. This is apparent as the number of sales is at its lowest in 2007, 2008, and 2009 - the time period of the late financial crisis. Incomes decreased and therefore also government expenditure. So since the governments had a reduced budget, they were forced to purchase fewer arms. However, once the global economy started to recover from the crisis, incomes rose again. Thus, governments were able to spend more on arms again (which we see in 2010 and 2011). This is a good example of how income, a non-price determinant of demand, can influence the demand on a good. Another non-price determinant of demand is government policy. The article states that Saudi Arabia was the developing world's biggest arms buyer in 2011, with deliveries of $2.8 billion - an unusually high number. Therefore, there must have been a change in Saudi Arabia's government policy; otherwise they would not suddenly be buying more arms. So now we see how government policy influences demand on arms.