The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers

75 Pages Posted: 27 Nov 2019 Last revised: 13 May 2023

See all articles by Enrico Moretti

Enrico Moretti

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Claudia Steinwender

Ludwig Maximilian University of Munich (LMU)

John Van Reenen

Massachusetts Institute of Technology (MIT)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2019

Abstract

We examine the impact of government funding for R&D - and defense-related R&D in particular - on privately conducted R&D, and its ultimate effect on productivity growth. We estimate longitudinal models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D as an instrumental variable. In many OECD countries, expenditures for defense-related R&D represents by far the most important form of public subsidies for innovation. In both datasets, we uncover evidence of “crowding in” rather than “crowding out,” as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. On average, a 10% increase in government-financed R&D generates a 5% to 6% additional increase in privately funded R&D. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in productivity gains.

Suggested Citation

Moretti, Enrico and Steinwender, Claudia and Van Reenen, John, The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (November 2019). NBER Working Paper No. w26483, Available at SSRN: https://ssrn.com/abstract=3492886

Enrico Moretti (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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HOME PAGE: http://emlab.berkeley.edu/~moretti/

National Bureau of Economic Research (NBER)

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Claudia Steinwender

Ludwig Maximilian University of Munich (LMU) ( email )

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John Van Reenen

Massachusetts Institute of Technology (MIT) ( email )

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