U.S. Assistance, Israeli Allocation, and the Arms Race in the Middle East

This paper constructs an econometric model of Israel's allocation of resources as between defense, public nondefense, and private consumption goods. Because these allocations are influenced by and simultaneously influence U.S. assistance and Arab military outlays, equations for U.S. and Arab allocations are also constructed. This entire multiequation system represents a multicountry allocation and arms race process in the Middle East. A comprehensive body of data on Israeli expenditures, surrounding Arab states expenditures, and U.S. assistance has been assembled for the period 1960 to 1979, and the multiequation model has been estimated. Several conclusions of both theoretical and policy importance emerge from the analysis.