Reagan’s Innovation Dividend? Technological Impacts of the 1980s US Defense Build-Up

Mirko Draca

CAGE Online Working Paper Series from Competitive Advantage in the Global Economy (CAGE)

Abstract: US government spending since World War II has been characterized by large investments in defense related goods, services and R&D. In turn, this means that the Department of Defense (DoD) has had a large role in funding corporate innovation in the US. This paper looks at the impact of military procurement spending on corporate innovation among publicly traded firms for the period 1966-2003. The study utilizes a major database of detailed, historical procurement contracts for all Department of Defense (DoD) prime contracts since 1966. Product-level spending shifts – chiefly centered around the Reagan defense build-up of the 1980s – are used as a source of exogenous variation in firm-level procurement receipts. Estimates indicate that defense procurement has a positive absolute impact on patenting and R&D investment, with an elasticity of approximately 0.07 across both measures of innovation. In terms of magnitudes, the contribution of defense procurement to innovation peaked during the early Reagan build-up, accounting for 11.4% of the total change in patenting intensity and 6.5% for R&D. This compares to defense sector share in output of around 4%. The later defense cutbacks under Bush Senior and Clinton then curbed the growth in technological intensity by around 2%.

Keywords: Regan; Military; procurement (search for similar items in EconPapers)
Date: 2013
New Economics Papers: this item is included in nep-his, nep-ino and nep-tid
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Citations: View citations in EconPapers (9)

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Persistent link: https://EconPapers.repec.org/RePEc:cge:wacage:168

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