Trends in National R&D Performance
U.S. R&D expenditures continued to rise in 2008, outpacing
the overall expansion of the nation's economy.
- NSF estimates that overall spending on R&D conducted
in the United States was $398 billion (current dollars) in
2008, up from $373 billion in 2007. This increase represents
growth in 2008 of 6.7% over the 2007 level, or 4.5%
in inflation-adjusted 2000 dollars. However, this 2008
figure may not fully reflect the effects of the downturn in
U.S. and global economic conditions that intensified in
- National R&D spending has increased mostly uninterrupted
since 1953. Over the past 20 years, growth in R&D
spending has averaged 5.6% in current dollars and 3.1%
in constant dollars—somewhat ahead of the average pace
of GDP growth over the same period (in both current and
The business sector accounts for most U.S. R&D performance
- The business sector performed an estimated $289 billion
of R&D in 2008, or 73% of the U.S. total, drawing on
both business and federal sources of R&D support. The
business sector itself provided an estimated $268 billion
of funding for R&D in 2008, or 67% of the U.S. total;
almost all of it supported R&D performed by business.
Over the past 5 years, expanded business spending has
accounted for much of the nation's R&D growth.
- The academic sector is the second-largest performer of
U.S. R&D, an estimated $51 billion in 2008, just under
13% of the U.S. total.
- The federal government is the second-largest funder of
U.S. R&D, providing an estimated $104 billion, or 26%
of the U.S. total in 2008.
U.S. R&D is dominated by development expenditures,
largely performed by the business sector, and most basic
research is conducted at universities and colleges.
- In 2008, basic research was about 17% ($69 billion) of
the U.S. total, applied research was about 22% ($89 billion),
and development was about 60% ($240 billion).
- Universities and colleges historically have been the main
performers of U.S. basic research, an estimated 56% of
total U.S. basic research in 2008. The federal government
has been the prime source of basic research funding, accounting
for 57% of the nation's total in 2008.
- The business sector, which currently accounts for more
than half of all U.S. applied research funding, spends
more than four times as much on applied research as on
- Development in the United States is chiefly a business
sector activity, which performed 90% of the total development
in 2008 and provided 84% of the funding. Most
of the rest of development funding is provided by the federal
Location of R&D Performance
R&D is geographically concentrated, and states vary significantly
in the types of research performed within their
- In 2007, the 10 states with the greatest R&D expenditure
levels accounted for 64% of all U.S. R&D expenditures.
California alone represented 22% of U.S. R&D—triple
that of Massachusetts, the next highest state. New Mexico,
Massachusetts, and Maryland had the highest R&D-to-GDP ratios in 2006. California ranked seventh in
- Massachusetts, Illinois, California, and Texas accounted
for about two-thirds of the R&D performed by computer
and electronics products companies in 2007; New Jersey,
Connecticut, and Pennsylvania are the leaders in chemicals
manufacturing, accounting for 41% of the R&D in
- Nationally, small companies (defined as having from 5 to
499 employees) perform 19% of the nation's total business
R&D. The R&D performance of these small companies
is concentrated geographically. Among the top 10
business R&D-performing states, New York and California
had the highest totals of small companies performing
business R&D, with 23% and 20%, respectively.
Business sector R&D rose to its highest level in 2007. Although
2008 projections show additional growth, they do
not reflect the effects of the U.S. economic downturn.
- R&D performed by the business sector is estimated to
have reached $269 billion in 2007 and is projected to have
increased to $289 billion in 2008.
- The company-funded R&D-to-sales ratio of companies in
all industries performing R&D in the United States varied
between 3.2% and 3.4% during 2003–06; in 2007 it was
- Over three-fourths of business R&D is performed in six
business sectors. The R&D-to-sales ratio for these sectors
as a group was 8.0% in 2007, compared with 1.4% for all
other business sectors.
Federal R&D spending continued to grow in recently
proposed and enacted budgets and received further increases
through the American Recovery and Reinvestment
- Budget appropriations for federal spending on R&D in
FY 2009 totaled $147.1 billion (current dollars), an increase
of $3.3 billion (or 2.4%) over the enacted FY 2008
spending level. The proposed overall increase for FY
2010 is smaller (0.4%).
- However, the American Recovery and Reinvestment Act
(ARRA) of 2009 included a one-time additional increase
in R&D funding that is estimated to total $18.3 billion in
- In the FY 2009 budget, increases in R&D funding were
greatest for the National Institutes of Health (NIH), the
Department of Energy (DOE), and the National Science
Foundation (NSF). Along with the National Aeronautics
and Space Administration and the National Institute of
Standards and Technology, these agencies also received
the largest increases from ARRA.
- Defense continues to be the largest function in the federal
R&D budget. It accounted for 59% of the federal total
(budget authority) in FY 2008.
- The most dramatic change in national R&D priorities
over the past 25 years has been the large rise in health-related
R&D, which grew from 25% of the federal nondefense
R&D budget in FY 1980 to 55% in FY 2005. In FY
2008, health accounted for 52% of the nondefense R&D
Federal R&D Tax Credit
- Along with direct funding of R&D, the government also
promotes the conduct of R&D through tax incentives.
About 11,000 U.S. companies claimed an estimated $7.3
billion in federal research and experimentation tax credits
in 2006, compared with $6.4 billion in 2005.
International R&D Comparisons
Many countries conduct R&D, but much of global R&D
performance continues to be concentrated in a few high-income
countries and regions.
- Worldwide R&D expenditures totaled an estimated
$1.107 trillion in 2007 (the latest year for which data are
available). The United States accounted for about 33% of
this total. Japan, the second-largest performer, accounted
for about 13%. China was third, at about 9%. Germany
and France, respectively, fourth and fifth (and the largest
performers in Europe), accounted for 6% and 4%, respectively.
The top 10 countries (also including South Korea,
the United Kingdom (UK), the Russian Federation, Canada,
and Italy) account for almost 80% of current global
- The 27 nations of the European Union (EU-27) accounted
for about 24% of global R&D. R&D by the EU-27 grew
at an average annual constant dollar rate of 3.3% between
1997 and 2007. By comparison, the U.S. pace of growth,
on the same basis, averaged 3.3%.
- Recent growth in R&D expenditures has been most dramatic
in China, averaging just above 19% annually in
inflation-adjusted dollars over the past decade.
Wealthy economies generally devote larger shares of
their gross domestic product (GDP) to R&D than do less
- The U.S. R&D/GDP ratio was 2.7% in 2007 and has fluctuated
between 2.6% and 2.8% over the past 10 years,
largely reflecting changes in business R&D spending. In
2007, the United States ranked eighth among the economies
tracked by the OECD; Japan, South Korea, and several
smaller developed economies had higher ratios.
- Among the major European R&D-performing countries,
Italy (2006) and the Russian Federation (2007) had R&D/GDP ratios of 1.1%. The UK ratio was 1.8% in 2007, and
those of France and Germany were 2.1% and 2.5%, respectively,
in 2007. Canada's R&D/GDP ratio was 1.9%
in 2007. Over the past 10 years, these ratios were stable
or changed only modestly.
- R&D/GDP ratios increased substantially in Japan, South
Korea, and China over the past 10 years. The Japanese
and South Korean ratios were among the highest in the
world in 2007, at 3.4% and 3.5% respectively. China's
ratio remains relatively low, at 1.5%, but has more than
doubled from 0.6% in 1996.
Among the countries with the largest R&D expenditures,
the business sector accounts for the bulk of total R&D
- Among the top 10 countries for R&D expenditures, the
business sector is the largest R&D performer, ranging
from 77% for South Korea and Japan to 49% for Italy.
- No single industry accounted for more than 18% of total
business R&D in the United States in 2007; many other
countries displayed much higher industry and sector concentrations.
- The pharmaceuticals industry accounts for more than
25% of business R&D in Denmark and the United Kingdom,
and more than 20% in Belgium and Ireland. The
computers, office and accounting machines industry
represents only a small share of business R&D in most
countries; only Japan reports a double-digit concentration
of business R&D in this industry. The service sector accounted
for 30% or more of all business R&D in many
countries of the Organisation for Economic Co-operation
and Development (OECD), including the United States.
R&D by Multinational Companies
Multinational companies (MNCs) represent a substantial
component of U.S. R&D. Overseas R&D by U.S. MNCs
reflects gradual changes in their geographic focus.
- Majority-owned affiliates of foreign-based MNCs spent
$34.3 billion on U.S. R&D in 2006, up from $31.1 billion
in 2005. Their U.S. R&D expenditures have grown faster
than total U.S. business R&D and have represented about
14% of U.S. business R&D since 2003, up from the single
digits in the early 1990s.
- U.S. MNCs performed $216.3 billion in R&D worldwide
in 2006, including $187.8 billion in the United States
by parent companies and $28.5 billion by their overseas
affiliates. The R&D by MNC parents represented 87%
of their global R&D and about 76% of total U.S. business
R&D. Both shares have changed little in recent
years. However, the geographic distribution of R&D by
their overseas affiliates is gradually reflecting the role of
- Europe, Canada, and Japan accounted for a decreasing
share of R&D by overseas affiliates of U.S. MNCs, representing
90% in 1994 and 80% in 2006. Over the same period,
the share performed in Asia (excluding Japan) rose
from 5.4 % to 13.5%, driven by affiliates' R&D spending
in China, Singapore, and South Korea.
- R&D performed by U.S.-owned affiliates located in China
and India increased from less than $10 million in each
country in 1994 to $804 million and $310 million, respectively,
in 2006. Although the 2006 levels for China and
India represented only about 3% and 1%, respectively,
of total overseas R&D by U.S. MNCs, funding levels in
some lower cost locations may still be significant from
the perspective of purchasing power.
Technology and Innovation Linkages
Federal agencies and laboratories continue to engage in
collaborative and technology transfer activities. Business
increased its R&D funding to contractors within the
- Federal agencies participated in more than 7,000 formal
Cooperative Research and Development Agreements in
2007 and more than 9,000 less formally structured collaborative
R&D relationships. Federal agencies issued more
than 1,400 patents in 2007 and held more than 10,000
active licenses based on their total stock of intellectual
- Businesses in the United States reported contracting out
an estimated $19.0 billion in R&D to other U.S.-located
companies in 2007, compared with $12.4 billion in 2006.
This increased the ratio of contracted-out R&D to company-funded and company-performed R&D from 5.5%
in 2006 to 7.8% in 2007. For manufacturers, the ratio
reached 8.5% in 2007, up from 5.7% in 2006.
International trade in R&D services and technology
alliances indicate the role of external sources and cooperative
arrangements aimed at acquiring or jointly
developing new knowledge.
- In 2007, the United States maintained a trade surplus in
research, development, and testing services of $3.3 billion.
Trade within MNCs dominates these statistics—which is not surprising, given their large role in U.S.
- Almost 900 worldwide business technology alliances
were established in 2006, approximately two-thirds of
which involved at least one U.S.-owned company regardless
of location. Since 1999, the proportion of U.S.-foreign
alliances has surpassed U.S.-only alliances, a change
driven by rapid growth in alliances with European companies.
However, in 2006 the number of U.S. alliances
with Asian non-Japanese partners (50) reached parity
with U.S.-Japan alliances (54), reflecting growth of the
former since 1990.