Chu, Angus C. and Lai, Ching-Chong (2009): Defense R&D: Effects on Economic Growth and Social Welfare.
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In the US, defense R&D share of GDP has decreased significantly since 1960. To analyze the implications on economic growth and welfare, we develop an R&D-based growth model that features the commonly discussed crowding-out and spillover effects of defense R&D on civilian R&D. The model also captures the important effects of defense technology on (a) national security and (b) aggregate productivity via the spin-off effect resembling consumption public goods and productive public goods respectively. In this framework, economic growth is driven by market-based civilian R&D as in standard R&D 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-shape effect on growth, and the growth-maximizing level of defense R&D is increasing in the spillover effect and in the spin-off effect. Also, there is a welfare-maximizing level of defense R&D that is increasing in the security effect of national defense, and there exists a critical degree of this security effect below (above) which the welfare-maximizing level of defense R&D is below (above) the growth-maximizing level.
|Item Type:||MPRA Paper|
|Original Title:||Defense R&D: Effects on Economic Growth and Social Welfare|
|Keywords:||defense R&D; economic growth; public goods; social welfare|
|Subjects:||O - Economic Development, Innovation, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O38 - Government Policy
H - Public Economics > H5 - National Government Expenditures and Related Policies > H56 - National Security and War
|Depositing User:||Angus C. Chu|
|Date Deposited:||17. Jul 2009 08:25|
|Last Modified:||22. Feb 2013 03:47|
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