The measurement of the timing of the economic impact of defense procurement activity : An analysis of the Vietnam buildup

This dissertation attempts to provide more precise knowledge about the timing of the impact of defense procurement activity on the output of the private sector of the United States economy. The performance patterns of 51 large defense procurement contracts which were administered between 1964 and 1969 are analyzed as a case study. Based on this analysis, a theoretical and statistical model is developed to estimate changes in economic output resulting from changes in the demand for defense procurement items. The model is used to estimate the rate of production on the total population of defense procurement contracts for the 1964-1969 period. The theoretical and statistical model is based on the hypothesis that defense firms attempt to maintain their production at some optimum ratio to the level of unfulfilled demand for defense procurement items. It is further assumed that as the level of unfulfilled demand changes, the rate of production will also change, but not instantaneously. Instead, there will be an adjustment period during which the rate of production will either be above or below the optimum ratio to unfulfilled demand and moving toward the optimum ratio. Therefore, the actual rate of production on defense procurement contracts is determined by the level of unfulfilled demand and changes in this level over time. The measurement of unfulfilled demand used is the level of unpaid obligations outstanding for procurement. The model is formulated to estimate the rate of production in the current month as a function of the amount of unpaid obligations outstanding in the current month and changes in this amount for the current month and the three previous months. The parameters of the model are estimated using the Almon distribution lag technique. The model provides a sensitive estimator of changes in the rate of production on the 51 sample contracts. The rate of production on the total population of defense procurement contracts for the Vietnam buildup period is estimated. These estimates are used to evaluate the accuracy of various Government data series in the measurement of the timing of the economic impact of the Vietnam buildup and to validate some of the earlier analyses of Murray L. Waidenbaum and Harvey Galper. It is concluded that Government data did not accurately measure the timing of the economic effects of the Vietnam buildup, that the earlier analyses of Weidenbaum and Galper are generally correct, and that the model will improve future measurements of the timing of the economic impact of defense procurement activity.