The Redistributive Effect of Loosening Arms Export Restrictions : An Event Study Analysis of the Japanese Case

The export of arms belongs to the most contested issues in many democracies. In this article, we examine the economic repercussions of the easing of the arms exports restrictions that began in Japan after the end of the Cold War with support from the United States. We particularly examine the redistributive effect that the discussion, and eventual implementation, of the policy reforms had on the stock market return of investments in various arms manufacturers. We develop a rational expectations model that examines how investors are influenced by political events and the discussions about them. We then examine at the firm level with the help of a specific technique developed in financial econometrics, the so-called event study approach, how the returns changed during the period in which the softening of the arms export restrictions was discussed. The preliminary statistical analysis shows that investors are closely observing relevant political developments and for instance that Shinmaywa, the producer of an amphibian aircraft able to start and land in water, reacted consistently to the policy changes. However, this effects has somehow eroded as the market recognized that the company must invest more before the aircraft can really be exported