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Macroeconomic Effects of Government Defense and Non-Defense R&D

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  • Andrea Recine
  • Massimiliano Tancioni

Abstract

We use narrative R&D appropriation shocks to investigate the transmission mechanism of government R&D. We document that a non-defense R&D shock boosts innovation, the stock market and labor productivity while prices decrease. We show that NASA's R&D contracting during the Space Race contributes to our results, with effects concentrated in transportation, electrical and computer equipment, and even more persistent in business services. In contrast, a defense R&D shock leads to mixed effects on innovation and labor productivity and, as a military news shock, generates a hump-shaped increase in defense equipment sector production. These results are robust in the post-Korea sample. Our findings on the macroeconomic transmission mechanism of non-defense R&D are consistent with theoretical models with endogenous productivity mechanisms and learning by doing.

Suggested Citation

  • Andrea Recine & Massimiliano Tancioni, 2025. "Macroeconomic Effects of Government Defense and Non-Defense R&D," Working Papers in Public Economics 262, Department of Economics and Law, Sapienza University of Roma.
  • Handle: RePEc:sap:wpaper:wp262
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    More about this item

    Keywords

    government R&D; non-defense R&D; NASA; Space Race; local projections; narrative identification;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy; Modern Monetary Theory
    • H25 - Public Economics - - Taxation, Subsidies, and Revenue - - - Business Taxes and Subsidies
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy

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