Does Defense R&D Boost or Bust Innovation? An Examination of Defense R&D Budget and Patenting
This thesis explores the relationship between defense research & development (R&D) budget and R&D productivity, as measured by the number of patent applications. Statistical analysis tests whether defense R&D budget inhibits or augments R&D productivity. Specifically, a series of four two-way fixed-effects models estimate patenting as a function of industry-financed R&D and government-financed R&D. Defense R&D budget is introduced and its impact analyzed using interaction terms and omitted variable bias analyses. Data for this analysis come from 25 developed countries in the period 1985-2005. Regression models reveal that defense R&D budget reduces the productivity of industry-financed R&D at a statistically significant level. These models also facilitate two secondary conclusions: government-financed R&D crowds-out the productivity of industry-financed R&D to a very small degree at a statistically significant level, and defense R&D reduces a nation's capacity to effectively use international technology transfer.
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