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On the Growth and Welfare Effects of Defense R&D

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Abstract

In the US, defense R&D share of GDP has decreased significantly since 1960. To analyze the implications on growth and welfare, we develop an R&D-based growth model that features the crowding-out and spillover effects of defense R&D on civilian R&D. The model also captures the effects of defense technology on (i) national security resembling consumption-type public goods and (ii) aggregate productivity via the spin-off effect resembling productive public goods. In this framework, economic growth is driven by market-based civilian R&D as in standard R&D-based growth models and government-financed public goods (i.e., defense R&D) as in Barro (1990). We find that defense R&D has an inverted-U effect on growth, and the growth-maximizing level of defense R&D is increasing in the spillover and spin-off effects. As for the welfare-maximizing level of defense R&D, it is increasing in the security-enhancing effect of defense technology, and there exists a critical degree of this security-enhancing effect below (above) which the welfare-maximizing level is below (above) the growth-maximizing level.

Suggested Citation

  • Angus C. Chu & Ching-Chong Lai, 2009. "On the Growth and Welfare Effects of Defense R&D," IEAS Working Paper : academic research 09-A008, Institute of Economics, Academia Sinica, Taipei, Taiwan, revised Dec 2009.
  • Handle: RePEc:sin:wpaper:09-a008 Note: Primitive title: Defense R&D: Effects on Economic Growth and Social Welfare
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    Cited by:

    1. Antonio Martínez González & Nuria Rueda López, 2013. "A Productivity And Efficiency Analysis Of The Security And Defence Technological And Industrial Base In Spain," Defence and Peace Economics, Taylor & Francis Journals, vol. 24(2), pages 147-171, April.
    2. repec:spr:scient:v:112:y:2017:i:3:d:10.1007_s11192-017-2443-6 is not listed on IDEAS

    More about this item

    Keywords

    defense R&D; public goods; economic growth; social welfare;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General

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