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Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states

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  • Gianluca Pallante
  • Emanuele Russo
  • Andrea Roventini

Abstract

Military Research and Development (R&D) expenditures arguably represent one of the main innovation policy levers for US policy makers. They are sizeable, with a clear-cut public purpose (national defense) and with the government being their exclusive buyer. Exploiting a longitudinal dataset linking public R&D obligations to private R&D expenditures for US states, we investigate the impact of defense R&D on privately-financed R&D. To address po- tential endogeneity in the allocation of funds, we use an instrumental variable identification strategy leveraging the differential exposure of US states to national shocks in federal military R&D. We document considerable "crowding-in" effects with elasticities in the 0.11-0.14 range. These positive effects extend also to the labor market, when focusing on employment in selected R&D intensive industries and especially for engineers.

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  • Gianluca Pallante & Emanuele Russo & Andrea Roventini, 2020. "Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states," LEM Papers Series 2020/32, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    • Handle: RePEc:ssa:lemwps:2020/32
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    3. Andrea Borsato, 2021. "An Agent-based Model for Secular Stagnation in the USA: Theory and Empirical Evidence," LEM Papers Series 2021/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.
    4. Giovanna Ciaffi & Matteo Deleidi & Stefano Di Bucchianico, 2022. "Stagnation despite ongoing innovation: Is R&D expenditure composition a missing link? An empirical analysis for the US (1948-2019)," Department of Economics University of Siena 877, Department of Economics, University of Siena.

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    More about this item

    Keywords

    R&D; Innovation policy; Defense; Mission-oriented innovation.;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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