2020/32 LEM Working Paper Series

Does mission-oriented funding stimulate private R&D? Evidence from military R&D for US states

Gianluca Pallante, Emanuele Russo and Andrea Roventini
R&D; Innovation policy; Defense; Mission-oriented innovation.

  JEL Classifications
O30, O31, 032, O38. H56, H57
US military Research and Development (R&D) expenditures arguably represent the best example of mission-oriented policy. They are sizeable, with a clear-cut public purpose (national defense) and with the government being their exclusive beneficiary. 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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