State Guarantees in the Defense Sector

From RIA Novosti.

Here is the latest news from Russia on domestic (government) support for the defense industry.  From PM Medvedev:

The provision of state guarantees is the first this year, Medvedev said, and stressed the beneficial effects it would have on the economy as a whole. 

“Everything invested in the defense industry has an influence on industry. Actually, the defense sector helps boost adjacent industries,” he said. 

State guarantees allow defense enterprises to obtain loans at a time when they face a shortage of working capital and have no other sources of financing, Medvedev said. 

Over a half of the state loan guarantees for defense producers this year will go to shipbuilders and developers of intercontinental ballistic missiles, according to the government resolution.

 In general there have always been arguments about beneficial spillovers from government spending on defense into the civilian economy.  This issue seems to be more important for the Russian economy. I often go back to the work of Gaddy and Ickes[1] that illustrates the distortions of Soviet Economy.

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[1] Gaddy, Clifford G., and Barry W. Ickes. 2002. Russia’s Virtual Economy. Washington  D.C.: Brookings Institution Press.