Analyzes international arms transfers and indigenous arms production by embedding these activities in a framework of economic, diplomatic, and political incentives and constraints. Traditional economic trade models are applied, yielding predictions of empirical relationships. Preliminary tests, using U.S. exports during the Vietnam buildup and decline, are consistent with predictions that exports should be inversely related to domestic demand. A cross-section analysis of indigenous arms production in 30 countries suggests that manufacturing size and technical capabilities are important supply influences, and that military expenditures are weakly related to demand. Although only suggestive, these preliminary results indicate that growing numbers of countries will produce arms as economic growth and industrialization proceed in the Third World.