Purpose. Detecting and quantifying global illicit small arms flows will likely contribute to greater awareness of, and better policy concerning, the prevention of violent conflicts. Small arms and ammunition availability is commonly deemed to be a destabilizing factor in many areas of the world, making violent conflict potentially more likely, longer lasting, and more intense. Yet currently international organizations that deal with such trafficking rely on problematic proxies for actual trade volumes, such as numbers of arms seized by national authorities.
Methods. Using a novel dataset of illicit prices compiled by Marsh et al. (2017), this paper proposes a new method for interring such illicit trade volumes: testing econometrically for price changes on the black market. Controlling for demand factors (e.g. homicide rates, per capita income, and ongoing violent conflicts) and authorized supplies (as compiled by the Norwegian Initiative on Small Arms Transfers (NISAT) project at the Peace Research Institute Oslo (PRIO), we employ an instrumental variable (IV) approach to predict prices for each country-year observation. We then interpret negative and positive deviations from predicted prices as indications respectively of net illicit imports to, and net illicit exports from, a given country. These price deviations are translated into volumes via an estimated elasticity of demand.
Findings. This paper presents our findings and discusses methodological caveats associated with our procedure. It discusses a possible extension to the model of inferring dyadic trade flows via a network analysis based on a gravity trade model. It then discusses possible ways to check the robustness of our predictions, as well as ways such procedures might be used by policy makers to assess the small arms trafficking interdiction efforts of both net-exporter and net-importer countries.
