Macro-Economic Effects of Disarmament Policies on Sectoral Production and Employment in the Federal Republic of Germany, with Special Emphasis on Development Policy Issues: Report Commissioned by the German Federal Foreign Office

Abstract

The study employs input-output techniques to assess the economic impact in the Federal Republic of Germany of a cut in defence spending on one hand and an increase in development aid on the other. The analysis is based on the DIW's input-output tables for 1972 and 1976, subdivided into 34 sectors of production. In 1972, the federal government's defence budget (DM 24 450 million) and German exports of goods and services for military purposes (about DM 1 300 million) together generated gross domestic production of DM 34 billion, corresponding to 2.1 per cent of total gross output that year. ln the private sector, vehicle building provided most, i. e., 3.8 per cent of its gross output, in order to meet (directly and indirectly) the federal government's military demand. Demand at home and abroad generated employmen.t for more than 1 million people corresponding to 3.8 per cent of the labour force at that time. In the private sector, i. e., excluding soldiers and civilian employees (679 500 people), about 340 000 people were working directly and indirectly for defence purposes. The federal government's defence spending for imported goods and services (just under DM 2 billion) and required intermediate imports (about DM 1.5 billion) accounted for 2.1 per cent of all German imports that year. In 1976, the sectoral level and pattern of activity was largely the same in real terms. The number of people in the private sector whose jobs depended directly and indirectly on defence spending was slightly down. On the basis of these relationships, a linear cut in defence spending at home and abroad of 5 per cent would affect gross output of DM 2.4 billion and about 50 000 jobs, including 34 000 soldiers and civilian employees in the public sector. Imports of DM 0.3 billion, would be saved. These figures would have to be doubled, both in total and sectorally, for a linear cut of 10 per cent. Exports of the Federal Republic of Germany to developing countries (including OPEC) in 1976 were about DM 63 billion. They generated gross output of nearly DM 120 billion and employment for over a million people, or 4.4 per cent of the total labour force. Compared with 1972, this meant an increase in the output effect of more than 120 per cent and in the employment effect of nearly 50 per cent. The sectors most affected were engineering, electrical engineering, vehicle building, metal production and chemicals. Statistically recorded orders to German firms arising from the bilateral development aid of the Federal Republic of Germany in 1976 ran to DM 1.6 billion. They accounted for a gross output of nearly DM 3 billion and employment of nearly 30 000 people. On the basis of the technology and prices prevailing in 1976, a linear increase in the bilateral development aid of the Federal Republic of Germany by 20 per cent - applied to 1 979 disbursements - would increase gross output by more than DM 700 million and employment by more than 7 000 persons. The same increase, but with higher priority given to projects in agriculture and the health and social sector, would increase German output by over DM 600 million and employment by more than 6 000. A worldwide increase in development aid by 20 per cent would generate extra employment in the Federal Republic of Germany totalling about 20 000 people. If development aid disbursements were increased by 15 or 25 per cent, the resulting figures would be a quarter below or above those given, respectively.