The post-Cold War era has witnessed considerably reduced national defense budgets and a consequent decline in the international arms trade. Therefore, the world’s arms suppliers have begun to sell high-performance weapons as another means of acquiring additional foreign exchange, thus enabling newly industrialised countries (NICs) to procure relatively advanced weaponry at lower prices. This trend is driving defense procurement policies in NICs toward purchasing arms from abroad. This development is impeding the growth of independent R&D capabilities, even causing rapid deterioration, and thus hindering further defense technology development (DTD). Hence, developing a policy to counter this change is an urgent requirement for NICs. This study analyzes the characteristics of DTD and development trends in advanced nations, and then uses system dynamics theory to construct a framework for developing defense technology in Taiwan.