Micro-Macro Interactions and U.S. Industrial Change

Abstract

When less than complete appropriability of the fruits of private sector spending on R&D exists, conventional wisdom holds that government support of the research is justified. The (reverse) case of national defense is much more controversial. How significant are the spillover effects from defense R&D onto the private-civilian sector of the American economy? Will the recent U.S. Technology Transfer Act at all contribute to the diffusion process? Defense spending accounts for nearly seven percent of the U.S. GNP, but as much as half of all U.S. spending on R&D is absorbed by the Department of Defense. Given a similar situation in the Soviet Union, essential questions about the “true burden” of defense spending come to mind. As one ponders America’s slipping role in defining and setting the world’s technology frontier, the massive absorption of resourses into defense-related R&D cannot be lightly disregarded.