Directed Technical Change under Dual-Use Innovation

Many frontier technologies generate both civilian and military applications, raising the question of how policies targeting one application influence innovation when knowledge is shared across sectors. This paper develops a Schumpeterian model of directed technical change in which civilian, military and dual-use technologies coexist as endogenous innovation ladders. The key innovation is to distinguish between a non-rival stock of knowledge generated by dual-use research and rival intermediate goods supplying civilian and military markets. Consequently, policy interventions in one sector redirect research incentives throughout the economy. The model admits a stable balanced-growth path with an interior allocation of research effort. A calibration based on U.S. patent stocks, aggregate R&D intensity and defence R&D expenditure illustrates the transition dynamics. Modest policy interventions substantially redirect innovation towards dual-use technologies, generating civilian knowledge spillovers while leaving long-run aggregate growth largely unchanged.