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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. Bo Kyeong Lee & So Young Sohn, 2017. "Exploring the effect of dual use on the value of military technology patents based on the renewal decision," Scientometrics, Springer;Akadémiai Kiadó, vol. 112(3), pages 1203-1227, September.
    2. Huang, Chien-Yu & Lai, Ching-Chong & Peretto, Pietro F., 2025. "Public R&D, private R&D and growth: A Schumpeterian approach," Journal of Economic Behavior & Organization, Elsevier, vol. 236(C).
    3. Iwaisako, Tatsuro, 2013. "Welfare effects of patent protection and productive public services: Why do developing countries prefer weaker patent protection?," Economics Letters, Elsevier, vol. 118(3), pages 478-481.
    4. Thierry Laurent, 2012. "Dépenses militaires, croissance et bien être : une simulation de l’impact macroéconomique de la R&D défense," Revue d'économie politique, Dalloz, vol. 122(6), pages 971-1009.
    5. 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.

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    Keywords

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    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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