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Military R&D, Growth and the Optimal Allocation of Governement Spending

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  • Stefano Bosi

    ()
    (EPEE, Center for Economic Policy Studies, University of Evry)

  • Thierry Laurent

    ()
    (EPEE, Center for Economic Policy Studies, University of Evry)

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    Abstract

    The purpose of the model developed in the paper is to provide a simple economic framework to address an economic policy question, namely the optimal size of military R&D investment within total public expenditures. To capture the long-run impact of military R&D on the growth rate of the economy, one develops an endogenous growth model in line with Barro [1990] and Shieh & alii [2002]; the model focuses on the optimal sharing of public resources between civil investments, public consumption, military R&D investment and “standard” military spending. It emphasizes the key role played by public military R&D investments in determining the longrun levels of economic growth and welfare. According to our numerical simulations — based on a very prudential set of assumptions concerning the economic impact of military R&D — a 3.65 billions euros permanent reallocation of public spending from civilian unproductive public consumption towards military R&D investment, would induce a 380 billions euros GDP discounted benefit over a decade. In such a framework, characterized by productive externalities originating in military R&D, the government optimal policy should be to massively invest in military R&D: a global tax rate below 12% would drive to a 5.6% GDP long-run yearly growth rate.

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    File URL: http://epee.univ-evry.fr/RePEc/2006/06-12.pdf
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    Bibliographic Info

    Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 06-12.

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    Length: 27 pages
    Date of creation: 2006
    Date of revision:
    Handle: RePEc:eve:wpaper:06-12

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    Related research

    Keywords: endogenous growth; R&D; military expenditures; public spending;

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    References

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    1. Maria Arrazola & Jose de Hevia, 2004. "More on the estimation of the human capital depreciation rate," Applied Economics Letters, Taylor & Francis Journals, vol. 11(3), pages 145-148.
    2. Robert J. Barro, 2013. "Inflation and Economic Growth," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 121-144, May.
    3. Ploeg, F. van der & Zeeuw, A.J. de, 1988. "Perfect equilibrium in a model of competitive arms accumulation," Discussion Paper 1988-4, Tilburg University, Center for Economic Research.
    4. Sandler,Todd & Hartley,Keith, 1995. "The Economics of Defense," Cambridge Books, Cambridge University Press, number 9780521447287.
    5. N. Gregory Mankiw & David Romer & David N. Weil, 1990. "A Contribution to the Empirics of Economic Growth," NBER Working Papers 3541, National Bureau of Economic Research, Inc.
    6. Zou, Heng-fu, 1995. "A dynamic model of capital and arms accumulation," Journal of Economic Dynamics and Control, Elsevier, vol. 19(1-2), pages 371-393.
    7. Brumm, Harold J., 1997. "Military Spending, Government Disarray, and Economic Growth: A Cross-Country Empirical Analysis," Journal of Macroeconomics, Elsevier, vol. 19(4), pages 827-838, October.
    8. Barro, R.J., 1988. "Government Spending In A Simple Model Of Endogenous Growth," RCER Working Papers 130, University of Rochester - Center for Economic Research (RCER).
    9. Deger, Saadet & Sen, Somnath, 1983. "Military expenditure, spin-off and economic development," Journal of Development Economics, Elsevier, vol. 13(1-2), pages 67-83.
    10. Biswas, Basudeb & Ram, Rati, 1986. "Military Expenditures and Economic Growth in Less Developed Countries: An Augmented Model and Further Evidence," Economic Development and Cultural Change, University of Chicago Press, vol. 34(2), pages 361-72, January.
    11. Philippe Aghion & Peter Howitt, 1997. "Endogenous Growth Theory," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262011662, December.
    12. Dakurah, A. Henry & Davies, Stephen P. & Sampath, Rajan K., 2001. "Defense spending and economic growth in developing countries: A causality analysis," Journal of Policy Modeling, Elsevier, vol. 23(6), pages 651-658, August.
    13. Brito, D L, 1972. "A Dynamic Model of an Armaments Race," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 13(2), pages 359-75, June.
    14. Deger, Saadet, 1986. "Economic Development and Defense Expenditure," Economic Development and Cultural Change, University of Chicago Press, vol. 35(1), pages 179-96, October.
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