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Chapter 4. Research and Development: National Trends and International Linkages

Highlights


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 late 2008.
  • 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 constant dollars).

The business sector accounts for most U.S. R&D performance and funding.

  • 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 basic research.
  • 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 government.

Location of R&D Performance

R&D is geographically concentrated, and states vary significantly in the types of research performed within their borders.

  • 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 R&D/GDP intensity.
  • 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 that industry.
  • 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 R&D

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 3.5%.
  • 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

Federal R&D spending continued to grow in recently proposed and enacted budgets and received further increases through the American Recovery and Reinvestment Act.

  • 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 FY 2009.
  • 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 budget.

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 R&D performance.
  • 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 developed economies.

  • 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 performance.

  • 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 emerging markets.
  • 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 United States.

  • 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 property.
  • 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. R&D performance.
  • 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.
 

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010