Manufacturing Growth, Technological Progress, and Military Expenditure

Abstract

During the Cold War a major justification of high levels of military spending was the ‘spin off’ of innovations to the civil sector, such as computers, which could then be exploited profitably and to the benefit of the economy and society. There is evidence that this has changed in more recent times, with the speed of consumer industry led technological change leading to ‘spin in’ to advanced weapons systems. If this is the case it has removed a major benefit of military spending. There is, however, little systematic evidence and little recent empirical work. This paper makes a contribution to the debate, analysing the impact of military spending on technological progress, and hence labour productivity and economic growth, for a number of major weapons producers. It uses data on the manufacturing sector, for the period 1966-2002 and estimates a CES production function in which military spending is assumed to effect growth through its impact on trend technological change.