The Economic Effects Of The End Of The Cold War

The end of the Cold War and the dissolution of the Warsaw Pact have raised a host of new questions. Will there be a Peace Dividend: more security and more money to spend on other things, or a Peace Penalty: mass unemployment in the arms industry and financial difficulty for many leading high-technology firms? Will there even be Peace at all or will there be instead a new ‘Second World War’ as the old Second World of the Centrally Planned Economies relapses into internecine nationalist conflict? Many of these questions are unanswerable, but this paper reviews what is known about the likely trend in military spending and its economic impact on Western Economies. It examines the strategic context which will determine the size of the reductions in military expenditure; the policy response which will determine how governments adjust their budgetary stance to reduced military outlays; and the macroeconomic and industrial impact of these changes.