The intellectual spoils of war? Defense R&D, productivity, and international spillovers

Enrico Moretti, Claudia Steinwender and John van Reenen

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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 represent 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.

Keywords: Rights; Retention (search for similar items in EconPapers)
JEL-codes: J1 (search for similar items in EconPapers)
Pages: 14 pages
Date: 2025-01-03
New Economics Papers: this item is included in nep-cse, nep-eff, nep-ino, nep-ppm and nep-tid
References: View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published in Review of Economics and Statistics, 3, January, 2025, 107(1), pp. 14 - 27. ISSN: 0034-6535

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http://eprints.lse.ac.uk/119703/ Open access version. (application/pdf)

Related works:
Journal Article: The Intellectual Spoils of War? Defense R&D, Productivity, and International Spillovers (2025)
Working Paper: The intellectual spoils of war? Defense R&D, productivity and international spillovers (2019)
Working Paper: The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (2019)
Working Paper: The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (2019)
Working Paper: The intellectual spoils of war? Defense R&D, productivity and international spillovers (2019)
Working Paper: The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (2019)
Working Paper: The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ehl:lserod:119703

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