---
title: "Fact of the Week: A 1 Percent Increase in Mid-term Military R&D Funding Stimulates Increases Privately Financed R&D Expenditures by 0.11 to 0.14 Percent"
summary: |-
  Defense R&D spending can help to relax credit constraints on innovate sectors, increase profitability of spin-off projects, and foster entrepreneurship.
date: "2021-01-11"
issues: ["Science and R&D"]
authors: ["Kevin Gawora"]
content_type: "Blogs"
canonical_url: "https://itif.org/publications/2021/01/11/fact-week-1-percent-increase-mid-term-military-rd-funding-stimulates/"
---

# Fact of the Week: A 1 Percent Increase in Mid-term Military R&D Funding Stimulates Increases Privately Financed R&D Expenditures by 0.11 to 0.14 Percent

**Source:** Gianluca Pallante, Emanuele Russo and Andrea Roventini, “[Does mission-oriented funding stimulate private R&D? Evidence from military R&D for US states](http://www.growinpro.eu/wp-content/uploads/2020/11/working_paper_2020_31.pdf),” *Institute of Economics and EMbeDS, Sant’Anna School of Advanced Studies*, November 31, 2020

**Commentary:** Government spending is often thought to crowd-out private sector investment by increasing competition for, and reducing the supply of, a fixed pool of loanable funds. Three Italian economists tested the validity of this claim by examining the spillover effects of increases in defense R&D spending across all U.S. states from 1968 to 2017. By regressing that data with state-level high-tech employment data for the period of 1999 to 2018, they identified significant causal impacts of increased defense R&D spending on the private sector. Specifically, the economists found a multiplier effect of between 0.11 and 0.14, indicating that government spending can actually crowd-in, rather than crowd-out, private investment in R&D. This is possible because defense R&D spending can help to relax credit constraints on innovate sectors, increase profitability of spin-off projects, and foster entrepreneurship.

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*Source: Information Technology & Innovation Foundation (ITIF)*
*URL: https://itif.org/publications/2021/01/11/fact-week-1-percent-increase-mid-term-military-rd-funding-stimulates/*