Offset arrangements as an instrument of technology transfer in combat-system procurement: a comparative evaluation of the fiscal efficiency of direct and indirect compensation models

Defence offsets — additional economic, industrial, and technological benefits that an arms-importing state extracts from a foreign original equipment manufacturer (OEM) as a condition of combat-system procurement — have, since the 1980s, become a near-universal feature of the international arms trade. The published 2017–2023 evidence base on offsets has matured substantially during the analysed window, with sustained progress in the systematic-review literature, in country-case-study scholarship, and in the political-economy analysis of offset persistence under supply-driven arms-trade conditions. Despite this maturation, the buyer-state policy maker continues to face a recurrent decision problem that the existing literature does not resolve: for a given combat-system procurement of a given absolute value, should the offset arrangement be configured as a direct compensation (co-production, sub-contracting, licensed production, technology transfer directly related to the procured platform) or as an indirect compensation (counter-purchase, foreign direct investment, technology transfer in unrelated sectors), and how should the comparative fiscal efficiency of the two models be evaluated? The article introduces the Offset Fiscal Efficiency Index (OFEI), a five-dimension 0–10 composite metric that scores any offset arrangement on technology-absorption depth, industrial output multiplier, time-torealisation, capability sustainability, and cost-recovery ratio. The OFEI is operationalised through a structured comparative workflow and applied to seven country cases — South Korea, Türkiye, India, Brazil, Saudi Arabia, Indonesia, and Poland — across the 2017–2023 window for both direct and indirect compensation models. Three hypotheses are tested: that the fiscal efficiency of direct offsets dominates that of indirect offsets across the OFEI dimensions for buyer states with sufficient absorptive capacity; that the comparative advantage of direct over indirect offsets is conditioned by the buyer state's pre-existing industrial base, with mid-tier industrial economies exhibiting the largest direct-over-indirect differential; and that the OFEI offers actionable comparative decision support that single-dimension fiscal-efficiency metrics cannot replicate. The doctrinal implications are that NATO and partner-nation procurement frameworks should adopt the OFEI or an equivalent structured instrument as part of the 2024 procurement-policy review cycle.