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The Trade-off between Innovation and Defence Industrial Policy: A Simulation Model Analysis of the Norwegian Defence Industry

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  • Blom, Martin
  • Castellacci, Fulvio
  • Fevolden, Arne

Abstract

The paper investigates the trade-off between innovation and defence industrial policy. It presents an agent-based simulation model calibrated for the Norwegian defence industry that compares different policy scenarios and examines the effects of a pending EU market liberalization process. The paper points to two main results. (1) It finds that a pure scenario where national authorities focus on, and provide support exclusively for, either a) international competitiveness or b) national defence and security objectives, is more Pareto efficient than a corresponding mixed strategy where policy makers simultaneously pursue both international competitiveness and defence and security objectives. (2) Under the conditions of the new EU liberalization regime, a stronger and more visible trade-off will emerge between international competitiveness and national defence and security objectives. Policy makers will have to choose which to prioritise, and set a clear agenda focusing on one of the two objectives.

Suggested Citation

  • Blom, Martin & Castellacci, Fulvio & Fevolden, Arne, 2014. "The Trade-off between Innovation and Defence Industrial Policy: A Simulation Model Analysis of the Norwegian Defence Industry," MPRA Paper 55326, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:55326
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    References listed on IDEAS

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    1. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
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    7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
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    Cited by:

    1. Day-Yang Liu & Chia-Kan Wang & Chung-Yi Fang & Pei-Leen Liu, 2021. "A Study of Project Financing on the Defense Industry in Systems Thinking Perspective," Journal of Applied Finance & Banking, SCIENPRESS Ltd, vol. 11(2), pages 1-6.
    2. Bojnec, Štefan, 2016. "Dual-use products export multipliers with the indirect effects," Technological Forecasting and Social Change, Elsevier, vol. 102(C), pages 287-296.
    3. Michail Ploumis, 2017. "Hellenic Defence Industrial Base in the Era of Economic Crisis," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 15(2), pages 103-125.

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    More about this item

    Keywords

    Innovation policy; industrial policy; defense industry; EU liberalization; agent-based simulation model;
    All these keywords.

    JEL classification:

    • C6 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling
    • H0 - Public Economics - - General
    • L1 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance
    • O3 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights

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