DEFENSE RESEARCH-AND-DEVELOPMENT, CROWDING-OUT AND THE PEACE DIVIDEND

Defence R&D is a controversial subject. Critics argue that it ''crowds -out'' valuable civil R&D expenditure and drains the civil economy of qualified scientists and engineers (QSEs). This paper assesses the evi dence for crowding-out in the UK. Cointegration techniques are used to test whether there is a negative causal relationship between public d efence and civil R&D expenditure. Because the manpower debate has been hampered by the lack of official statistics we develop estimates of n umbers of QSEs employed on defence R&D in UK industry over the period 1975-92. Turning to the ''Peace Dividend'', our results suggest that a 10% cut in UK defence equipment expenditure will reduce employment le vels by 6%. We conclude that in the absence of a negative causal relat ionship between public defence and civil R&D expenditure there may be a role for public policy in aiding the absorption of displaced defence QSEs into the economy.