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Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states

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  • Pallante, Gianluca
  • Russo, Emanuele
  • Roventini, Andrea

Abstract

Defense R&D represents the largest component of US public R&D spending and historically has promoted a wide range of civilian innovations. However, the empirical evidence on the impact of defense R&D is scant and it does not provide conclusive results on the possible crowding-in (-out) effects on private R&D investment. Exploiting a longitudinal dataset linking public R&D obligations to private R&D expenditures for US states, we investigate the impact of defense R&D on privately-financed R&D. To address potential endogeneity in the allocation of funds, we use an instrumental variable identification strategy leveraging the differential exposure of US states to national shocks in federal military R&D. We document considerable crowding-in effects with elasticities in the 0.11–0.14 range. These positive effects extend also to the labor market, when focusing on employment in selected R&D intensive industries and especially for engineers.

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  • Pallante, Gianluca & Russo, Emanuele & Roventini, Andrea, 2023. "Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states," Research Policy, Elsevier, vol. 52(8).
    • Handle: RePEc:eee:respol:v:52:y:2023:i:8:s0048733323000914
    DOI: 10.1016/j.respol.2023.104807
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    Cited by:

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    2. repec:hal:spmain:info:hdl:2441/401t6job098n79ch91o9giov9d is not listed on IDEAS
    3. KOUAKOU, Dorgyles C.M. & SZEGO, Eva, 2024. "Evaluating the integration of artificial intelligence technologies in defense activities and the effect of national innovation system performance on its enhancement," MPRA Paper 120617, University Library of Munich, Germany.
    4. Giovanna Ciaffi & Matteo Deleidi & Stefano Di Bucchianico, 2022. "Stagnation despite ongoing innovation: Is R&D expenditure composition a missing link? An empirical analysis for the US (1948-2019)," Department of Economics University of Siena 877, Department of Economics, University of Siena.
    5. Andrea Borsato, 2021. "An Agent-based Model for Secular Stagnation in the USA: Theory and Empirical Evidence," LEM Papers Series 2021/09, Laboratory of Economics and Management (LEM), Sant'Anna School of Advanced Studies, Pisa, Italy.

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    More about this item

    Keywords

    R&D; Innovation policy; Defense R&D; Mission-oriented innovation;
    All these keywords.

    JEL classification:

    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General
    • O31 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Innovation and Invention: Processes and Incentives
    • O38 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Government Policy
    • H56 - Public Economics - - National Government Expenditures and Related Policies - - - National Security and War
    • H57 - Public Economics - - National Government Expenditures and Related Policies - - - Procurement

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