Defense R&D: Effects on Economic Growth and Social Welfare
AbstractIn the US, defense R&D share of GDP has decreased significantly since 1960. To analyze the implications on economic growth and welfare, we develop an R&D-based growth model that features the commonly discussed crowding-out and spillover effects of defense R&D on civilian R&D. The model also captures the important effects of defense technology on (a) national security and (b) aggregate productivity via the spin-off effect resembling consumption public goods and productive public goods respectively. In this framework, economic growth is driven by market-based civilian R&D as in standard R&D growth models and government-financed public goods (i.e. defense R&D) as in Barro (1990). We find that defense R&D has an inverted-U-shape effect on growth, and the growth-maximizing level of defense R&D is increasing in the spillover effect and in the spin-off effect. Also, there is a welfare-maximizing level of defense R&D that is increasing in the security effect of national defense, and there exists a critical degree of this security effect below (above) which the welfare-maximizing level of defense R&D is below (above) the growth-maximizing level.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16325.
Date of creation: Jul 2009
Date of revision:
defense R&D; economic growth; public goods; social welfare;
Find related papers by JEL classification:
- O41 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
- O38 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Government Policy
- H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-07-28 (All new papers)
- NEP-INO-2009-07-28 (Innovation)
- NEP-MIC-2009-07-28 (Microeconomics)
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