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

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  • Draca, Mirko

    (University of Warwick)

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    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 a 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%.

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    File URL: http://www2.warwick.ac.uk/fac/soc/economics/research/centres/cage/research/wpfeed/168-2013_draca.pdf
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    Bibliographic Info

    Paper provided by Competitive Advantage in the Global Economy (CAGE) in its series CAGE Online Working Paper Series with number 168.

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    Date of creation: 2013
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    Handle: RePEc:cge:wacage:168

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    Keywords: Regan; Military; procurement;

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