THE IMPACT OF PUBLIC DEFENCE R&D SPENDING ON PRIVATE R&D SPENDING

S. Calò, R. Kramer and F. Tomasone

Quarterly Report on the Euro Area (QREA), 2025, vol. 24, issue 3, 31-40

Abstract: Recent geopolitical events have triggered a debate about increasing defence expenditures and their broader economic implications. The economic effect is expected to crucially depend, among others, on the extent to which higher public defence R&D spending can crowd in private R&D spending. Focusing on a sample of EU and OECD countries for the period 1981 to 2023, the analysis of this chapter suggests the existence of a crowding-in effect on business expenditures in R&D financed by the private sector, patents and real GDP per capita. The crowding-in effects have long and variable lags. The extent of crowding-in, however, depends on countries’ innovation performance, a factor that comprises the innovation ecosystem, including the quality of the policy environment, education systems, infrastructure, the capacity for knowledge creation and the pre-shock level of public defence R&D spending. This suggests that a common public defence R&D shock may exacerbate the innovation gap between more and less advanced innovators

Keywords: defence; fiscal multiplier; R&D (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:euf:qreuro:0243-03

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