Directed Technical Change under Dual-Use Innovation

Tiago Neves Sequeira ()
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Tiago Neves Sequeira: University of Coimbra, Faculty of Economics and CeBER

No 2026-06, CeBER Working Papers from Centre for Business and Economics Research (CeBER), University of Coimbra

Abstract: Many frontier technologies generate both civilian and military applications, raising the question of how policies targeting one application influence innovation when knowledge is shared across sectors. This paper develops a Schumpeterian model of directed technical change in which civilian, military and dual-use technologies coexist as endogenous innovation ladders. The key innovation is to distinguish between a non-rival stock of knowledge generated by dual-use research and rival intermediate goods supplying civilian and military markets. Consequently, policy interventions in one sector redirect research incentives throughout the economy. The model admits a stable balanced-growth path with an interior allocation of research effort. A calibration based on U.S. patent stocks, aggregate R&D intensity and defence R&D expenditure illustrates the transition dynamics. Modest policy interventions substantially redirect innovation towards dual-use technologies, generating civilian knowledge spillovers while leaving long-run aggregate growth largely unchanged.

Keywords: Directed technical change; dual-use innovation; endogenous growth; defense R&D; Schumpeterian growth; industrial policy (search for similar items in EconPapers)
JEL-codes: H56 L16 O31 O32 O33 O40 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2026-07
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