OFFSETS AND DEVELOPMENT OF DEFENCE SUPPORT INDUSTRIES IN SMALL ECONOMIES

Abstract

This paper provides an analysis of offsets, a measure employed by many small countries for the development of a local high technology/defence support industry. Offsets in government procurements involve seeking trade, technological or industry work-load benefits through negotiation of reciprocal sales between the purchaser and the foreign supplier of the equipment. A theoretical model capturing the nature of this protective measure is developed. Australian and Canadian data are used to show that both countries' experiences fit the pattern suggested by the model. Implicit protection costs and perceived benefits of the programme are thus put into perspective.