The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers / Enrico Moretti, Claudia Steinwender, John Van Reenen.

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Moretti, Enrico

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Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w26483.Publication details: Cambridge, Mass. National Bureau of Economic Research 2019.Description: 1 online resource: illustrations (black and white)Subject(s):

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Abstract: In the US and many other OECD countries, expenditures for defense-related R&D represents a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D - and defense-related R&D in particular - on privately conducted R&D, and its ultimate effect on productivity growth. We estimate longitudinal models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D based on industry mix as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. On average, a 10% increase in government-financed R&D generates a 5% to 6% additional increase in privately funded R&D. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in productivity gains.

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Item type	Home library	Collection	Call number	Status	Date due	Barcode	Item holds
Working Paper	Biblioteca Digital	Colección NBER	nber w26483 (Browse shelf(Opens below))	Not For Loan

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November 2019.

In the US and many other OECD countries, expenditures for defense-related R&D represents a key policy channel through which governments shape innovation, and dwarf all other public subsidies for innovation. We examine the impact of government funding for R&D - and defense-related R&D in particular - on privately conducted R&D, and its ultimate effect on productivity growth. We estimate longitudinal models that relate privately funded R&D to lagged government-funded R&D using industry-country level data from OECD countries and firm level data from France. To deal with the potentially endogenous allocation of government R&D funds we use changes in predicted defense R&D based on industry mix as an instrumental variable. In both datasets, we uncover evidence of "crowding in" rather than "crowding out," as increases in government-funded R&D for an industry or a firm result in significant increases in private sector R&D in that industry or firm. On average, a 10% increase in government-financed R&D generates a 5% to 6% additional increase in privately funded R&D. We also find evidence of international spillovers, as increases in government-funded R&D in a particular industry and country raise private R&D in the same industry in other countries. Finally, we find that increases in private R&D induced by increases in defense R&D result in productivity gains.