COMPARING POST-COLD-WAR MILITARY CONVERSION IN THE UNITED-STATES AND RUSSIA

According to the conventional wisdom, military conversion in Russia wo uld be more difficult than in the United States because Russia does no t have the developed market infrastructure and institutions that help western defense firms redeploy resources for civilian production. A cl oser look raises doubts about these arguments, Western defense firms h ave had difficulties with conversion because they cannot compete with the existing relatively efficient civilian firms. Meanwhile, the princ ipal competitors of the Russian defense firms, the large Russian civil ian enterprises, are closer in nature to defense enterprises than to e fficient market firms. While this does not bode well for the Russian e conomy in general, the defense enterprises should not find themselves at a significant disadvantage in the civilian markets. Two effects can be distinguished. On the one hand, due to the move developed market i nfrastructure, the U.S. economy is presumably good at redeploying defe nse-related resources across firm boundaries. On the other hand, the l arge and efficient civilian sector in the United States makes the marg inal ''civilian'' value of the redeployed resources low. It is the int eraction of these factors, rather than the degree of development of ma rket infrastructure alone, that determines the relative difficulty of military conversion. Additionally, empirical evidence based on regiona l data indicates that despite enormous defense expenditure cuts, the e conomic performance of Russia's regions is only relatively weakly corr elated with the regions' dependency on defense industry. (JEL L69, P17 , P27, P52).