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Defence R&D expenditure: The crowding-out hypothesis

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  • Eduardo Morales-Ramos

Abstract

The impact of defence expenditure on the economy has been widely studied through different types of models. However, the results from these studies have not reached definitive conclusions, and have left a gap in the analysis of the impact of defence R&D expenditure at the economy level. Defence R&D has specific characteristics, which lead to market failures: public good, high risk and uncertainty, national security. Also, defence R&D creates two types of externalities: negative (crowding-out), and positive (spin-off). Crowding-out is the major economic debate about defence R&D. This paper analyses the crowding-out hypothesis by applying three types of models for the UK case: supply, demand, and demand-supply models. From these three models the most reliable is chosen and applied to the individual cases of France, Germany, Japan and USA. The paper also reports the results for the pooled data of these five countries, and for four error component models. The results from estimating such models shed light on the defence R&D crowding-out hypothesis.

Suggested Citation

  • Eduardo Morales-Ramos, 2002. "Defence R&D expenditure: The crowding-out hypothesis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(5), pages 365-383.
  • Handle: RePEc:taf:defpea:v:13:y:2002:i:5:p:365-383
    DOI: 10.1080/10242690213507
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    References listed on IDEAS

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    Cited by:

    1. Andrew James, 2006. "The Transatlantic Defence R&D Gap: Causes, Consequences And Controversies," Defence and Peace Economics, Taylor & Francis Journals, vol. 17(3), pages 223-238.
    2. David Popp & Richard G. Newell, 2009. "Where Does Energy R&D Come From? Examining Crowding Out from Environmentally-Friendly R&D," NBER Working Papers 15423, National Bureau of Economic Research, Inc.
    3. Stéphane Auray & Aurélien Eyquem & Fréderic Jouneau-Sion, 2011. "Wars as Large Depreciation Shocks," Working Papers 2012-30, Center for Research in Economics and Statistics.
    4. Eduardo Morales Ramos, 2004. "Country survey XIX: Mexico," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 83-99, February.
    5. Amara, Jomana, 2008. "Military industrialization and economic development: Jordan's defense industry," Review of Financial Economics, Elsevier, vol. 17(2), pages 130-145.

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