ABSTRACT
This chapter aims to develop some important interactions between defense purchases and macroeconomic performance, provides empirical evidence on the quantitative effects of projected declines in defense spending on the level and growth rate of productive capacity, and investigates the contribution of defense and non-defense research and development (R&D) to productivity growth. It focuses on the supply effects of defense spending. The chapter examines the effects of a projected decline in defense spending on the level of output, capital formation, and productivity growth. It discusses the data employed in the production function regressions and reviews the important trends in the data. The chapter also focuses on the decline in output and productivity growth in the 1970's and in the 1980's, and the degree to which the public capital stock and R&D stocks may have contributed to the output and productivity slowdown.
