Fact of the Week: A 10 Percent Increase in Public Investment in Defense R&D Increases Private R&D Investment by 4.3 Percent

Source: Enrico Moretti, Claudia Steinwender, and John Van Reenen, “The Intellectual Spoils of War? Defense R&D, Productivity and International Spillovers,” November 2019, NBER Working Paper No. 26483.

Commentary: Defense spending is the main source of public R&D investment in the United States, totaling $78 billion in 2016. A new study examines the impacts of defense R&D investment by leveraging the dramatic increases in defense R&D investment across the OECD in the years following 2001. It finds that a 10 percent increase in public investment in defense R&D increases private R&D investment by 4.3 percent. Because a large majority of R&D spending in the United States is private, this implies the $70 billion that the government invested in defense R&D in 2004 incentivized an additional $71 billion in private R&D investments. Further, the study finds that the combined effect of this public and private R&D funding increased the rate of productivity growth in the United States by 1.9 percent from 2001 to 2004.