Army. The costs and benefits : business research

Abstract

The defense expenses are usually considered to be inefficient because they are taking away resources from the other branches of economy and use these resources for producing goods and services, which can never been consumed. So, they are treated as wastage of scare national resources. These expenses are even less desirable for developing countries because of a higher vulnerability of their economies and low levels of average consumption. Transitional countries also seldom think of the shift from the existing form of a conscript army to the volunteer one. Creation of a volunteer army is thought to be rather expensive and not affordable to their week economies when there is an opportunity for the army with a compulsory duty. Actually, only the Baltic countries from all the Soviet republics were thinking of this shift. [10] On the other hand, this shift may have the positive economic consequences due to the multiplier effect of the increased government expenditures. So that these positive consequences may be able to cover all the costs associated with the shift from one type of army to the other. This work is to investigate the economic consequences that the shift of conscript army into volunteer one will have for Armenia; as well as the possibility of this shift and sustainability for the budget. First we will consider the influence of increasing defense expenses on the economy, applying to the world history and the experience of other countries. We want to show that these expenses are more effective for the transitional or developing countries than for the developed ones, because the hypothetically existing trade-off between the national defense and national economy is more attributable for the later ones. Then we will look into the costs and benefits that this shift will have for the economy of Armenia: the volunteer army, which is more expensive from the accounting point of view, can be more efficient from the economic standpoint of the opportunity cost. And finally, we will draw the financial model to apply to the budget and see if all these extra expenses are sustainable for it. And if they are not, then some sensitivity analyzes will be done to find out the conditions that will make this shift possible. Anyway, it is important to keep in mind, that we want this shift not for the simple sake for stimulation of economy by increasing the government expenditures. We do it rather to destroy the equilibrium, one with an “improper” risk level of interest rates, which has been achieved at our financial market, when the equilibrium in Nagorno-Karabagh conflict was achieved.