How buying weapons can harm a country's economy

This article has been reviewed according to Science X's editorial process and policies. Editors have highlighted the following attributes while ensuring the content's credibility: Some wars are predictable. There are conflicts past and present which have been more or less expected because of economic and social conditions, a country's history or that of its neighbors.

In today's geopolitical landscape, one warning sign that stands out is the buying and selling of weapons. There is good evidence that a surge in arms imports tends to increase the risk and intensity of future wars. Building up military power does not merely prepare a country for war.

It can also fuel the geopolitical tensions that make war more likely. Our research shows that when a country starts buying more weapons, its stock market tends to fall. We found that increases in a country's arms imports are associated with statistically and economically significant declines in its financial markets.

Weapons procurement also serves as a strong predictor of market movements—stronger even than the actual outbreak of a military conflict. This may be because markets are driven by surprises. And by the time a war begins, investors may already have expected it and priced it in.

Perhaps surprisingly, a large amount of information on international arms deals is openly monitored and recorded by organizations such as the U.N. and the Stockholm International Peace Research Institute. Using the data they provide, investors can make gradual and proactive portfolio adjustments rather than waiting for the shock of war to send markets tumbling. And we used the same information to examine the weapons imports and stock markets of over 72 countries (including the U.S., the U.K., China and India) over a period of more than 50 years, from 1970 to 2023.

The conflicts we looked at included the 1982 Falklands War between the U.K. and Argentina, clashes between India and Pakistan in the 1990s, the invasion of Iraq and the ongoing war in Ukraine. We also accounted for a wide range of factors that could influence stock markets, including the broader economic environment. Our evidence points to a definitive link between a country's military buildup and the fortunes of its financial markets.