Stockholm International Peace Research Institute (SIPRI) estimated that 2012 military expenditures were roughly $1.8 trillion. This represents a relative decline from 1990 when military expenditures made up 4% of world GDP. Part of the money goes to the procurement of military hardware and services from the military industry. The combined arms sales of the top 100 largest arms-producing companies amounted to an estimated $395 billion in 2012 according to SIPRI. In 2004 over $30 billion were spent in the international arms trade (a figure that excludes domestic sales of arms). According to SIPRI, the volume of international transfers of major weapons in 2010–14 was 16 per cent higher than in 2005–2009. The five biggest exporters in 2010–2014 were the United States, Russia, China, Germany and France, and the five biggest importers were India, Saudi Arabia, China, the United Arab Emirates and Pakistan.
Many industrialized countries have a domestic arms-industry to supply their own military forces. Some countries also have a substantial legal or illegal domestic trade in weapons for use by its citizens, primarily for self-defence, hunting or sporting purposes. Illegal trade in small arms occurs in many countries and regions affected by political instability. The Small Arms Survey estimates that 875 million small arms circulate worldwide, produced by more than 1,000 companies from nearly 100 countries.
Contracts to supply a given country's military are awarded by governments, making arms contracts of substantial political importance. The link between politics and the arms trade can result in the development of what U.S. President Dwight D. Eisenhower described as a military-industrial complex, where the armed forces, commerce, and politics become closely linked, similarly to the European multilateral defence procurement. Various corporations, some publicly held, others private, bid for these contracts, which are often worth many billions of dollars. Sometimes, as with the contract for the international Joint Strike Fighter, a competitive tendering process takes place, with the decision made on the merits of the designs submitted by the companies involved. Other times, no bidding or competition takes place.
During the early modern period, France, United Kingdom, Netherlands and some states in Germany became self-sufficient in arms production, with diffusion and migration of skilled workers to more peripheral countries such as Portugal and Russia.
The modern arms industry emerged in the second half of the nineteenth century as a product of the creation and expansion of the first large military-industrial companies. As smaller countries (and even newly industrializing countries like Russia and Japan) could no longer produce cutting-edge military equipment with their indigenous resources and capacity, they increasingly began to contract the manufacture of military equipment, such as battleships, artillery pieces and rifles to foreign firms.