The Impact of Defense Procurement On U.S. Manufacturing Productivity Growth

As the 20th Century ends, technologies originally developed for defense purposes such as computers and satellite communications appear to have become a driving force behind economic growth. Paradoxically, almost all econometric models suggest that the largely defense-oriented federal industrial R&D funding that helped create these technologies had no discernible effect on industrial productivity growth. This paper addresses this paradox by stressing that defense procurement and hence federal R&D expenditures were targeted to a few narrowly defined manufacturing sub sectors that produced high tech weaponry. Panel data analysis employing disaggregated data from the NBER Manufacturing Productivity Database and the BEA's Input Output tables then demonstrates that defense procurement did have significant positive effects on the productivity performance of disaggregated manufacturing industries.