Defense Promotion and Industrial Development

• Europe's rearmament is also an industrial policy experiment. Readiness 2030 could mobilize up to €800 billion, while Europe sends 78% of its defense procurement abroad. The volume of this spending matters, but so do the details of procurement

design and allocation of policy.

• Public innovation support generally crowds private R&D and investment in rather than out, but downstream effects on patents, productivity, and broader industrial outcomes are more heterogeneous. Returns are concentrated among SMEs, new entrants,

and constrained firms. However, evidence around defense policy is limited.

• Procurement is the central but least understood instrument of defense industrial policy. It can create future demand, stimulate R&D, and build production capacity, but complex rules and uncertain follow-on contracts can exclude SMEs and favor incumbents. More open procurement and reliable pathways from development to production are essential.

• Defense spillovers are not automatic. Secrecy and specialized technologies can limit civilian transfers, but wartime research and dual-use programs can generate wider benefits. Europe should prioritize technologies with civilian applications and

strengthen the administrative capacity needed to effectively design, guide, and evaluate procurement.