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Defence R&D expenditure: The crowding-out hypothesis

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  • Eduardo Morales-Ramos

Abstract

The impact of defence expenditure on the economy has been widely studied through different types of models. However, the results from these studies have not reached definitive conclusions, and have left a gap in the analysis of the impact of defence R&D expenditure at the economy level. Defence R&D has specific characteristics, which lead to market failures: public good, high risk and uncertainty, national security. Also, defence R&D creates two types of externalities: negative (crowding-out), and positive (spin-off). Crowding-out is the major economic debate about defence R&D. This paper analyses the crowding-out hypothesis by applying three types of models for the UK case: supply, demand, and demand-supply models. From these three models the most reliable is chosen and applied to the individual cases of France, Germany, Japan and USA. The paper also reports the results for the pooled data of these five countries, and for four error component models. The results from estimating such models shed light on the defence R&D crowding-out hypothesis.

Suggested Citation

  • Eduardo Morales-Ramos, 2002. "Defence R&D expenditure: The crowding-out hypothesis," Defence and Peace Economics, Taylor & Francis Journals, vol. 13(5), pages 365-383.
    • Handle: RePEc:taf:defpea:v:13:y:2002:i:5:p:365-383
    DOI: 10.1080/10242690213507
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    Cited by:

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    3. Chaoqing Yuan & Sifeng Liu & Yingjie Yang & Yu Shen, 2016. "On the contribution of defense innovation to China’s economic growth," Defence and Peace Economics, Taylor & Francis Journals, vol. 27(6), pages 820-837, November.
    4. Amara, Jomana, 2008. "Military industrialization and economic development: Jordan's defense industry," Review of Financial Economics, Elsevier, vol. 17(2), pages 130-145.
    5. Stéphane Auray & Aurélien Eyquem & Fréderic Jouneau-Sion, 2012. "Wars as Large Depreciation Shocks," Working Papers 2012-30, Center for Research in Economics and Statistics.
    6. Jun Ando, 2018. "Externality of Defense Expenditure in the United States: A New Analytical Technique to Overcome Multicollinearity," Defence and Peace Economics, Taylor & Francis Journals, vol. 29(7), pages 794-808, November.
    7. Federico Caviggioli & Antonio De Marco & Giuseppe Scellato, 2020. "Investigating the capabilities and the competitiveness of the EU vis-à-vis its main competitors in developing civilian technologies with critical spillovers into the defence," JRC Research Reports JRC120293, Joint Research Centre.
    8. David Popp & Richard G. Newell, 2009. "Where Does Energy R&D Come From? Examining Crowding Out from Environmentally-Friendly R&D," NBER Working Papers 15423, National Bureau of Economic Research, Inc.
    9. Eduardo Morales Ramos, 2004. "Country survey XIX: Mexico," Defence and Peace Economics, Taylor & Francis Journals, vol. 15(1), pages 83-99, February.
    10. Popp, David & Newell, Richard, 2012. "Where does energy R&D come from? Examining crowding out from energy R&D," Energy Economics, Elsevier, vol. 34(4), pages 980-991.
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