Government regulation on economic growth and innovation: The effect of public investment in defence R&D

Investment in research and development (R&D) is an important factor in stimulating innovation and economic upturn. A lack of empirical studies concerning the impact of defence R&D on economic growth in Russia precludes the scientifically grounded use of this factor in shaping state innovation policy. The article examines the dynamic cause-and-effect relationship between public investment in defence and civilian R&D and Russia’s GDP to work out effective state regulation methods to manage economic growth and innovation. Economic growth theory and the concept of mission-oriented innovation policy constitute the methodological basis of the study. The key research methods are wavelet coherence analysis and continuous wavelet transform that allow assessing the intensity of the non-linear relationship based on the wavelet coherence index and the direction of the relationship considering the phase difference between defence and civilian R&D and GDP on different time scales. The evidence base covers data from the RF Ministry of Finance, including GDP and government expenditure on consumption and investment in 2005–2023. It was found that in the medium term an increase in defence R&D leads to GDP growth and is associated with the multiplier effect of innovation development of the national economy. Public investment in R&D acts as a stimulus to aggregate demand and can drive the transition to new technical-economic paradigms that do not emerge spontaneously from market forces. The research findings deepen the scientific understanding of the role of defence and civilian R&D in stimulating economic growth and can be utilized to formulate science, technology, and economic policy.