Does public R&D funding crowd-in private R&D investment? Evidence from military R&D expenditures for US states |
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| Institution: | 1. Nord University, Nord University Business School, Innovation and Entrepreneurship Division, Universitetsalléen 11, 8026 Bodø, Norway;2. Rudolfovo - Science and Technology Centre Novo mesto, Podbreznik 15, 8000 Novo mesto, Slovenia;3. NIHR Newcastle In Vitro Diagnostics Co-operative, Translational and Clinical Research Institute, William Leech Building, Medical School, Newcastle University, Newcastle NE2 4HH, UK;1. Department of Economics and Finance & UCMeta, University of Canterbury, New Zealand;2. Federal Reserve Bank of St. Louis, USA;1. Centre for Business in Society (CBiS), Coventry University, Priory Street, Coventry CV1 5FB, UK;2. School of Slavonic and East European Studies, University College London, Taviton Street 16, London WC1H 0BW, UK;3. School of Applied Sciences, University of Campinas, Rua Pedro Zaccaria, 1300, Limeira, São Paulo 13484-350, Brazil;1. Innovation Management Group, Faculty of Business Economics, Hasselt University, Agoralaan Gebouw D, 3590 Diepenbeek, Belgium;2. Strategy & Innovation Dep., Copenhagen Business School, Kilevey 14a, 2000 Frederiksberg, Denmark |
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| 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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| Keywords: | R&D Innovation policy Defense R&D Mission-oriented innovation |
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