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US R&D Continues to Rebound in 2004
NSF 06-306 | January 2006 | PDF format PDF format  

U.S. R&D grew to $291.9 billion in 2003 after declining in 2002 for the first time since 1953, when these data were first collected.[1] The National Science Foundation (NSF) projects that data for 2004 will show continued growth in U.S. R&D to $312.1 billion. As a point of reference, in 1990 total U.S. R&D was $152.0 billion in current dollars, less than half the projected figure for 2004.

After adjusting for inflation, total R&D declined 2.2% between 2001 and 2002, then increased 3.9% in 2003 and increased a projected 4.7% in 2004. These recent growth rates in R&D exceed the average annual inflation-adjusted growth rate over the prior two decades, but they do not match the 6% per year growth of the late 1990s that resulted from substantial increases in industry R&D (figure 1), most notably in information and communications technology industries.[2]

FIGURE 1. U.S. R&D, by performing and funding sector: 1953–2004.
  Figure 1 Source Data: Excel file

The decline in 2002 and subsequent recovery of U.S. R&D can largely be attributed to the business sector, which performed 70% of U.S. R&D in 2004 (table 1). The next largest sector in terms of R&D performance, universities and colleges, performed one-fifth the R&D of the business sector. However, universities and colleges performed over half of the nation's basic research (table 1). Federal agencies and all federally funded research and development centers (FFRDCs) combined performed 12% of U.S. total R&D in 2004.[3]

TABLE 1. U.S. R&D expenditures, by character of work, performing sector, and source of funds: 2004 (projected).
  Table 1 Source Data: Excel file

Besides performing the majority of U.S. R&D, the business sector is also the largest source of R&D funding in the United States, providing 64% ($199 billion) of total R&D funding in 2004. Most businesses spend their R&D budgets on either internal R&D projects or for contract R&D performed by other businesses. Less than 2% of business R&D funding flows to other sectors. The federal government provided the second largest share of R&D funding, 30% ($93.4 billion). Unlike the business sector, the majority of federal R&D dollars finance R&D in other sectors, with only 40% of these funds financing federal agencies and FFRDCs. The other sectors of the economy (e.g., state governments, universities and colleges, and nonprofit institutions) contributed the remaining 6% ($20 billion).

Total R&D/GDP Ratios

The ratio of R&D expenditures to GDP is an indicator of the intensity of R&D activity in relation to other economic activity and can be used to gauge a nation's commitment to R&D at different points in time. In the United States, the slowdown in GDP growth in 2001 preceded the decline of R&D in 2002. This resulted in R&D to GDP ratios of 2.7% in 2001 (a recent high) and 2.6% in 2002 (figure 2).[4] Data for 2003 and projections for 2004 indicate that R&D and GDP grew at roughly the same rates in the subsequent two years.

FIGURE 2. R&D share of GDP: 1953–2004.
  Figure 2 Source Data: Excel file

Since 1953, U.S. R&D expenditures as a percentage of GDP have ranged from a minimum of 1.4% (in 1953) to a maximum of 2.9% (in 1964). Most of the growth over time in the R&D/GDP ratio can be attributed to increases in nonfederal R&D spending. Nonfederally financed R&D, the majority of which is financed by industry, increased from 0.6% of GDP in 1953 to an estimated 1.9% of GDP in 2004 (down from a high of 2.1% of GDP in 2000).

Historically, most of the peaks and valleys in the U.S. R&D/GDP ratio can be attributed to changing priorities in federal R&D spending. The drop in the R&D/GDP ratio from the peak in 1964 largely reflected federal cutbacks in defense and space R&D programs. Gains in energy R&D activities between 1975 and 1979 resulted in a relative stabilization of the ratio. Beginning in the late 1980s, cuts in defense-related R&D kept federal R&D spending from keeping pace with GDP growth, whereas growth in nonfederal sources of R&D spending generally kept pace with or exceeded GDP growth. Since 2000, defense-related R&D spending has surged, and federal R&D spending growth has outpaced GDP growth.

International Comparisons

Although spending on R&D in the United States far exceeds spending in any other country, several nations report higher R&D/GDP ratios.[5] According to data from the Organisation for Economic Co-operation and Development (OECD), the United States ranked sixth among countries with reported R&D/GDP ratios (table 2). Israel, devoting 4.9% of its GDP to R&D, led all countries, followed by Sweden (4.3%), Finland (3.5%), Japan (3.1%), and Iceland (3.1%).[6] In general, nations in Southern and Eastern Europe tend to have R&D/GDP ratios of 1.5% or lower, whereas Nordic nations and those in Western Europe report R&D spending shares greater than 1.5%. This pattern broadly reflects the wealth and level of economic development for these regions. A strong link exists between countries with high incomes that emphasize the production of high-technology goods and services and those that invest heavily in R&D activities. The private sector in low-income countries often has a low concentration of high-technology industries, generally resulting in low R&D/GDP ratios. Because of the business sector's dominant role in global R&D funding and performance, R&D/GDP ratios are most useful when comparing countries with national science and technology (S&T) systems of comparable maturity and development.

TABLE 2. R&D share of gross domestic product, by country/economy: 2000–03.
  Table 2 Source Data: Excel file

Outside the European region, R&D spending has intensified considerably since the early 1990s. Several Asian countries, most notably South Korea and China, have been particularly aggressive in expanding their support for R&D and S&T-based development. In Latin America and the Pacific region, other countries also have attempted to increase R&D investments substantially during the past several years. Even with recent gains, however, most of these countries invest a smaller share of their economic output in R&D than do the developed economies in Asia, Europe, and North America. For example, all Latin American countries for which such data are available report R&D/GDP ratios at or below 1%. This distribution is consistent with broader indicators of economic growth and wealth.

User Notes

The U.S. R&D data presented here are derived by adding up the R&D performance for all sectors of the economy for which it can be reasonably estimated. The sources of data for sector-specific R&D performance are the following National Science Foundation's surveys: Survey of Industrial R&D, Survey of R&D Expenditures at Universities and Colleges, Survey of Federal Funds for R&D, and Survey of R&D Funding & Performance by Nonprofit Organizations. Preliminary estimates for 2003 and 2004 were based in part on time-series modeling and econometric techniques.

R&D expenditure levels from federal sources, presented here based on performer-reported surveys, differ from R&D data reported by the federal agencies that provide those funds. Beginning in 1989, the amount of federally funded R&D reported by performers began to diverge from the amount reported by federal agencies. For FY 2004, federal agencies reported obligating $102.7 billion in total R&D to all R&D performers ($38.9 billion, or 37.9 percent, to industry), compared with $93.4 billion in federal funding reported by the performers of R&D. Although NSF has not found a definitive explanation for this divergence, the National Research Council notes that comparing federal outlays (as opposed to obligations) for R&D to performer expenditures results in a smaller discrepancy. For FY 2004, federal agencies reported R&D outlays of $97.3 billion to all R&D performers. The difference in the federal R&D totals appears to be concentrated in the funding of industry R&D by the Department of Defense. See National Patterns of R&D Resources: 2003 (2005) for further discussion of these differences and a more detailed analysis of national R&D trends. National Patterns reports can be found online at http://www.nsf.gov/statistics/natlpatterns/.

For additional information contact

Brandon Shackelford
Research and Development Statistics Program
Division of Science Resources Statistics
National Science Foundation
4201 Wilson Boulevard, Suite 965
Arlington, VA 22230



[1] Expenditures on R&D performance are used as a proxy for actual R&D performance. In this InfoBrief, the phrases R&D performance and expenditures for R&D are interchangeable.

[2] In this InfoBrief, the terms business sector and industry are used interchangeably.

[3] FFRDCs are R&D-performing organizations that are exclusively or substantially financed by the federal government either to meet a particular R&D objective or, in some instances, to provide major facilities at universities for research and associated training purposes. Each FFRDC is administered either by an industrial firm, a university, or a nonprofit institution. In some of the statistics provided here, FFRDCs are included as part of the sector that administers them. In particular, statistics on the industrial sector often include industry-administered FFRDCs because some of the statistics from the NSF Survey of Industrial Research and Development before 2001 cannot be separated from the FFRDC component.

[4] Growth in the R&D/GDP ratio does not necessarily imply increased R&D expenditures. For example, the rise in R&D/GDP from 1978 to 1985 was due as much to a slowdown in GDP growth as it was to increased spending on R&D activities.

[5] The United States performs over twice as much R&D as the next largest country, Japan, and accounts for over a third of world R&D expenditures.

[6] Although the United States does not lead the world in this indicator, several of its states have R&D intensities exceeding 4%. Massachusetts, a state with an economy larger than Sweden's and twice that of Israel's, has reported an R&D intensity at or above 5% for the past three years.

National Science Foundation, Division of Science Resources Statistics
U.S. R&D Continues to Rebound in 2004
Arlington, VA (NSF 06-306) [February 2006]

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