Topic: Miller College of Business

October 6, 2011

Defense spending is a major factor driving Indiana's economy as a result of $4 billion in contracts in 2010, ranking the state 23rd in the nation, says a new report from Ball State University.

A Technical Analysis of the Economic Impact of U.S. Department of Defense Contracts in Indiana by Ball State's Center for Business and Economic Research (CBER)  found that in 2010 about 9,400 defense-related contracts across the state supported more than 21,000 jobs.

Defense contracts have been a staple of Indiana's economy for generations due to the state's strong manufacturing sector and its strategic, logistically friendly location, said report co-author Michael Hicks, CBER director. CBER is the research division of the Miller College of Business.

"However, the drawdown in Iraq and an eventual end of combat operations in Afghanistan likely will slow defense spending on some types of equipment, supplies and training, " he said. "Still, overall spending by the Department of Defense on Indiana contractors will continue to be an important part of Indiana's high technology manufacturing and research and development-focused economy."

One of the largest portions of federal government budget spending is allocated to the Department of Defense (DOD). The majority of DOD contracts are awarded by field organizations to vendors throughout the country. The top five state recipients of defense contracts to firms in 2010 were Virginia, California, Texas, Maryland and Florida.

The study found $4 billion in defense contracts in 2010 follows a two-year decline. Indiana's defense contract values were $1.73 billion in 2008 and $2.09 billion in 2009. Indiana had seen a steady increase in defense contracts from 2004-07.

The study used a regional model of Indiana produced by REMI Inc. to estimate the economic impact of the largest contract sectors identified as light trucks, aircraft and aerospace, engineering and communications manufacturing.

"These sectors alone accounted for more than 21,000 jobs, adding almost $1.6 billion to the state's economy and increasing personal income by more than $1.1 billion in 2010," said study co-author Srikant Devaraj, CBER senior research associate and project manager.

Many higher education institutions in Indiana are connected to the DoD by providing educational and research and development services. DOD contracts to universities amounted to $17.1 million.

The study also found that in 2010 a majority of defense contracts were granted to suppliers in areas with large populations, including Allen, Marion, Vanderburgh and St. Joseph counties.