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The Economic Case for Investing in Europe’S Defence Industry

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The Economic Case for Investing in Europe’S Defence Industry Error! No text of specified style in document. The Economic Case for Investing in Europe’s Defence Industry September 2013 - 1 - Europe Economics is registered in England No. 3477100. Registered offices at Chancery House, 53-64 Chancery Lane, London WC2A 1QU. Whilst every effort has been made to ensure the accuracy of the information/material contained in this report, Europe Economics assumes no responsibility for and gives no guarantees, undertakings or warranties concerning the accuracy, completeness or up to date nature of the information/analysis provided in the report and does not accept any liability whatsoever arising from any errors or omissions © Europe Economics. Contents 1 Executive Summary .............................................................................................................................................. 1 1.1 Broad macroeconomic impacts of defence investment ...................................................................... 1 1.2 Unpacking the mechanisms by which defence spending affects the broader economy .............. 5 2 Introduction ........................................................................................................................................................... 8 3 Macroeconomic Impacts................................................................................................................................... 10 3.1 GDP............................................................................................................................................................... 11 3.2 Tax revenue ................................................................................................................................................ 13 3.3 Employment ................................................................................................................................................ 15 3.4 Skilled employment ................................................................................................................................... 18 3.5 R&D ............................................................................................................................................................... 21 3.6 Exports ......................................................................................................................................................... 22 3.7 Capital intensity .......................................................................................................................................... 26 3.8 Impacts at a sectoral level ........................................................................................................................ 27 3.9 Sensitivity analysis ...................................................................................................................................... 28 4 Comparison with Other Sectors .................................................................................................................... 30 4.1 GDP............................................................................................................................................................... 30 4.2 Tax revenue ................................................................................................................................................ 31 4.3 Employment ................................................................................................................................................ 32 4.4 Skilled employment ................................................................................................................................... 33 4.5 R&D ............................................................................................................................................................... 34 4.6 Exports ......................................................................................................................................................... 35 4.7 Capital intensity .......................................................................................................................................... 38 5 Case Studies - Unpacking how defence spending affects the broader economy ................................ 40 5.1 The contribution of these case studies................................................................................................. 40 5.2 Cases Studied .............................................................................................................................................. 40 5.3 Air – JAS Gripen ........................................................................................................................................ 41 5.4 Air – Dassault Rafale ................................................................................................................................. 44 5.5 Air – Eurofighter Typhoon ...................................................................................................................... 48 5.6 Air – Comparative analysis ...................................................................................................................... 54 5.7 Land – Leopard 2 Main Battle Tank ...................................................................................................... 58 5.8 Maritime – Compact naval guns ............................................................................................................. 65 5.9 R&T Case Study: Intelligence, Surveillance and Reconnaissance Unmanned Air Systems ....... 70 5.10 Defence aerospace technology transfer and spin-offs ...................................................................... 72 5.11 Section Appendix: Economic Rents ..................................................................................................... 75 6 R&D in the Defence Sector ............................................................................................................................. 78 6.1 Defence R&D .............................................................................................................................................. 78 6.2 R&D Funding ............................................................................................................................................... 79 6.3 Stakeholders’ Perspectives on Defence R&D ..................................................................................... 82 7 Conclusions ......................................................................................................................................................... 89 8 Appendix 1: Assumptions, conceptual issues and the €100m investment .......................................... 93 8.1 Conceptual Issues and Assumptions ..................................................................................................... 93 8.2 Mapping of defence expenditure categories ........................................................................................ 94 9 Appendix 2: I-O Analysis ............................................................................................................................... 103 9.1 Basic set up ................................................................................................................................................ 103 9.2 Changes in final demand ......................................................................................................................... 104 9.3 Multipliers .................................................................................................................................................. 105 9.4 Richer models ........................................................................................................................................... 106 9.5 Limitations ................................................................................................................................................. 106 10 Appendix 3: Model of Skilled Employment ............................................................................................... 107 10.1 Relationship between productivities ................................................................................................... 107 10.2 Calibration ................................................................................................................................................. 107 10.3 Determination of sectoral proportions .............................................................................................. 107 11 Appendix 4: Additional Results.................................................................................................................... 108 11.1 GDP............................................................................................................................................................. 108 11.2 Production tax .......................................................................................................................................... 109 11.3 Total tax ..................................................................................................................................................... 110 11.4 Employment .............................................................................................................................................. 111 11.5 Skilled employment ................................................................................................................................
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