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Chapter 4. R&D: National Trends and International Comparisons

International R&D Comparisons

Data on R&D expenditures by country and region provide a broad picture of the changing distribution of R&D capabilities and activities around the world. R&D data available from the OECD cover the organization's 34 member countries and 7 nonmembers.[36] The United Nations Educational, Scientific, and Cultural Organization's (UNESCO's) Institute for Statistics provides data on additional countries. The discussion in this section draws on both of these datasets.

International comparisons necessarily involve currency conversions. The analysis in this section follows the international convention of converting foreign currencies into U.S. dollars via purchasing power parity (PPP) exchange rates. (See sidebar, "Comparing International R&D Expenditures.")

Global Patterns of R&D Expenditures

Worldwide R&D expenditures totaled an estimated $1,276 billion (purchasing power parities) in 2009. The corresponding estimate, 5 years earlier in 2004 was $873 billion. Ten years earlier, in 1999, it was $641 billion. By these figures, growth in these global totals has been rapid, averaging nearly 8% annually over the last 5 years and 7% over the last 10 years.

Overall, global R&D performance remains highly concentrated in three geographic regions, North America, Asia, and Europe (figure 4-14). North America (United States, Canada, Mexico) accounted for 34% ($433 billion) of worldwide R&D performance in 2009; the combination of East/Southeast and South Asia (including China, Taiwan, Japan, India, South Korea), 32% ($402 billion); and Europe, including (but not limited to) European Union (EU) countries, 25% ($319 billion). The remainder, approximately 10%, reflects the R&D of countries in the regions of Central and South America, Central Asia, Middle East, Australia/Oceania, and Africa.

The geographic concentration is more apparent when looking at specific countries (table 4-19). Three countries account for more than half of global R&D. The United States is by far the largest R&D performer ($402 billion in 2009), accounting for about 31% of the global total, but down from 38% in 1999. China became the second largest performer ($154 billion) in 2009, accounting for about 12% of the global total. Japan moved down to third, at 11% ($138 billion). The largest EU performers spend comparatively less: Germany ($83 billion, 6%), France ($48 billion, 4%), and the United Kingdom ($40 billion, 3%). The most recent figure available for South Korea is 2008, with $44 billion of R&D—in recent years South Korea has typically been among the top seven R&D performing countries, representing 3%–4% of the global total. Taken together, these top seven countries account for about 71% of the global total. Russia, Italy, Canada, India, Brazil, Taiwan, and Spain comprise a next lower rung, with national R&D expenditures ranging from $20 billion to $33 billion.

Besides the generally vigorous pace at which the global total of R&D is now growing, the other major trend has been the rapid expansion of R&D performance in the regions of East/Southeast Asia and South Asia, including countries such as China, India, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand. The R&D performed in these two Asian regions represented only 24% of the global R&D total in 1999, but accounted for 32% in 2009, including China (12%) and Japan (11%).

China continues to exhibit the most dramatic R&D growth pattern (figure 4-15). The World Bank revised China's PPP exchange rate in late 2007, significantly lowering the dollar value of its R&D expenditures. Nonetheless, the pace of real growth over the past 10 years (1999–2009) in China's overall R&D remains exceptionally high at about 20% annually. The rate of growth in South Korea's R&D has also been relatively high, averaging nearly 10% annually over the 10-year period. Growth in Japan has been slower, at an annual average rate of 4.0%.

By comparison, while the U.S. remains atop the list of the world's R&D performing nations, its pace of growth in R&D performance has averaged 5.0% over the same 1999–2009 period, and its share of global R&D has declined from 38% to 31% over this time. Total R&D by EU nations has been growing (current dollars) over the same 10 years at an average annual rate of 5.8%. The pace of growth during the same period for Germany, France, and the United Kingdom has been somewhat slower, averaging 5.3%, 4.5%, and 4.5%, respectively. The EU countries accounted for 23% total global R&D in 2009, down from 27% in 1999.[37]

Comparison of Country R&D Intensities

R&D intensity provides another basis for international comparisons of R&D performance. This approach does not require conversion of a country's currency to a standard international benchmark yet still provides a way to adjust for differences in the sizes of national economies. (For additional background on R&D intensity and how it is affected by the economic make-up of a country, see sidebar, "R&D Intensity and the Composition of Gross Domestic Product.")

Total R&D/GDP Ratios

The U.S. R&D/GDP ratio was just under 2.9% in 2009 (table 4-19). At this level, the United States is eighth among the economies tracked by the OECD and UNESCO. Israel continues to have the highest ratio, at 4.3%—although Finland is not far back at 4%. Sweden, Japan, and South Korea all have ratios well above 3%; Switzerland and Taiwan are slightly above the U.S. figure.

The R&D/GDP ratio in the United States has ranged from 1.4% in 1953 to a high of 2.9% in 1964, and has fluctuated in the range of 2.6% to 2.7% in recent years (figure 4-16). Most of the growth over time in the U.S. R&D/GDP ratio can be attributed to increases in nonfederal R&D spending, financed primarily by business. Nonfederally financed R&D increased from about 0.6% of GDP in 1953 to about 2.0% of GDP in 2009. This increase in the nonfederal R&D/GDP ratio reflects the growing role of business R&D in the national R&D system and, more broadly, the growing prominence of R&D-derived products and services in the national and global economies.

Among other top seven R&D-performing countries, total R&D/GDP ratios over the 1999–2009 period show mixed trends (figure 4-16). Compared with 1999 R&D/GDP ratios, the 2009 ratios were substantially higher in Japan, Germany, and South Korea. (However, Japan's rising ratio reflects the confluence of declining GDP and largely flat R&D spending.) Most notably, China's ratio more than doubled over this 10-year period. For the United Kingdom, the 2009 ratio remained about the same, and for France, it slightly increased.

In addition to the United States, countries in Nordic and Western Europe and the most advanced areas of Asia have R&D/GDP ratios above 1.5%. This pattern broadly reflects the global distribution of wealth and level of economic development. Countries with high incomes tend to emphasize the production of high-technology goods and services and are also those that invest heavily in R&D activities. Private sectors in low-income countries often have a low concentration of high-technology industries, resulting in low overall R&D spending and, therefore, low R&D/GDP ratios.

Nondefense R&D and Basic Research

Further perspective is provided by the ratio of nondefense R&D expenditures to GDP. This ratio more directly measures civilian R&D intensity and is useful when comparing nations with substantially different financial commitments to national defense. Table 4-20 provides such figures for the top seven R&D performing nations, for 2009 or most recent data year. The U.S. ratio (2.3% in 2009) ranks ahead of that for the United Kingdom and France but lags behind Japan, South Korea, and Germany. (Data on this metric for China are not currently available.)

Another perspective comes from the extent to which spending on basic research accounts for a country's total R&D/GDP ratio. Estimates of the relative volume of basic research spending can provide a glimpse of the extent to which R&D resources are directed toward advancing the scientific knowledge base.

In 2009, the U.S. basic research/R&D ratio is about 0.6% and accounts for about a fifth of the total R&D/GDP ratio (table 4-20). France's basic research ratio is slightly below the U.S. figure and accounts for just over a quarter of its total ratio. South Korea's basic research ratio is close to the U.S. and French figures. The basic research ratios for Japan, the United Kingdom, and, especially, China are below the U.S. figure.

R&D by Performing Sector and Source of Funds

The business sector is the predominant R&D performer for all seven of the top R&D performing nations (table 4-21).[38] For the U.S., the business sector accounted for 70% of gross expenditures on R&D in 2009. Japan's business sector was the highest, accounting for almost 76% of the country's total R&D. China and South Korea were also well above the U.S. level. France and the United Kingdom were somewhat lower, at, respectively, 62% and 60%.

R&D performance by the government ranges over 9%–19% of total national R&D for the seven countries. Japan (9%) and the United Kingdom (9%) are on the lower end of this range. China (19%) and France (16%) are at the high end. The U.S., South Korea, and Germany lie in between.

Academic R&D ranges from 8% to 28% of total national R&D performance for these countries. China is the low point, at 8%. The United Kingdom is the highest, at 28%. The U.S. (14%), Japan (13%), and South Korea (11%) have lower shares; Germany (18%) and France (21%), higher shares.

With regard to the funding of R&D, the business sector is again the predominant source for all seven of the top R&D performing nations (table 4-22). In 2009, funding for about 75% of Japan's total national R&D came from the business sector. The corresponding figures for South Korea, China, and Germany are also high, in the 67%–73% range. R&D funding from business is lower, but still predominant, in the U.S., at 60%. The corresponding figures for France (51%) and the United Kingdom (45%) are notably lower.

Government is the second major source of R&D funding for these seven countries. France is the highest, at 39%. The lowest is Japan at 18%. The United Kingdom (33%), Germany (28%), and United States (31%) are on the higher side. South Korea (25%) and China (23%) are in between.

Funding from abroad refers to funding from businesses, universities, governments, and other organizations located outside of the country. Table 4-22 shows this funding category for selected OECD countries. For the U.S., data on funding from abroad is available only for the business sector.

Government R&D Priorities

The mix of government funding for R&D across differing objectives (e.g., defense, health, space, general research) provides insights into government R&D priorities. The OECD compiles such statistics annually on its member countries and selected others: government budget appropriations or outlays for R&D (GBAORD). GBAORD indicators for the United States and other top R&D performing countries appear in table 4-23, broken down by a number of major socioeconomic objectives.

Defense is an objective for government funding of R&D for all the top R&D-performing countries, but the share varies widely (table 4-23). Defense accounted for 52% of U.S. federal R&D support in 2009, but was markedly lower elsewhere: a smaller but still sizable 28% in France and 18% in the United Kingdom, 17% in South Korea, and below 6% in both Germany and Japan.

Defense has remained the focus of more than 50% of the federal R&D budget in the United States for much of the past 25 years. It was 63% in 1990 as the long Cold War period drew to a close, but dropped in subsequent years. The defense share of government R&D funding for the other countries over the past 25 years has generally declined or remained at a stable, low level.

The health and environment objective now accounts for some 56% of nondefense federal R&D budget support in the United States and 29% in the United Kingdom. For both countries, the share has expanded dramatically over the share prevailing several decades ago. The health and environment share is currently 19% in South Korea, 15% in France, and 10% or less in Germany and Japan. The funding under this objective goes primarily into the health arena in the United States and the United Kingdom (appendix table 4-45). In the other countries, it is more balanced between health and the environment.

The economic development objective encompasses agriculture, fisheries and forestry, industry, infrastructure, and energy. The share of nondefense government R&D support allocated to economic development has generally declined over the past 25 years across the OECD countries. In the United States, it was 36% of all nondefense federal support for R&D in 1981, dropping to 13% in 2009.[39] In the United Kingdom, it was 39% in 1981, declining to 9% in 2009. Despite a decline, support for this objective remains substantial in some countries: 23% in Germany and 24% in France (both with particular attention to industrial production and technology) and 31% in Japan (notably in energy and industrial production and technology). South Korea currently has by far the largest share for this objective, 52%, with a particularly strong emphasis in recent years on industrial production and technology.

The civil space objective now accounts for 11% of nondefense federal R&D funding in the United States. The share has been above or around 20% in the United States for much of the past 25 years. The share in France is currently about 13%, and has been around that level for almost 20 years. The share has been well below 10% for the rest of the top R&D countries.

Both the non-oriented research and general university funds (GUF) objectives reflect government funding for R&D by academic, government, and other performers that is directed chiefly at the general advancement of knowledge in the natural sciences, engineering, social sciences, humanities, and related fields. For some of the countries, the sum of these two objectives currently represents by far the largest part of nondefense GBAORD: Germany (58%), Japan (54%), the United Kingdom (54%), and France (45%). The corresponding 2009 shares for the United States (18%) and South Korea (23%) are substantially smaller. Nevertheless, cross-national comparisons of these particular indicators can be difficult, since some countries (notably the U.S.) do not use the GUF mechanism to fund general advancement of knowledge R&D, do not separately account for GUF funding (e.g., South Korea), and/or more typically direct R&D funding to project-specific grants or contracts (which are then assigned to the more specific socioeconomic objectives). For a further discussion of this topic, see the sidebar "Government Funding Mechanisms for Academic Research" later in this chapter.

Finally, the education and society objective represents a comparatively small component of nondefense government R&D funding for all seven of the countries. However, it is notably higher in Germany (4%), France (4%), and the United Kingdom (6%), than in the United States (2%) and Japan (1%). South Korea is in between at 3%.

Business R&D Focus

Business R&D varies substantially among countries in terms of both industry concentration and sources of funding. Because businesses account for the largest share of total R&D performance in the United States and most OECD countries, differences in business structure can help explain international differences in more aggregated statistics such as R&D/GDP. For example, countries with higher concentrations of R&D-intensive industries (such as communication, television, and radio equipment manufacturing) are likely to also have higher R&D/GDP ratios than countries whose business structures are weighted more heavily toward less R&D-intensive industries.

Using internationally comparable data, no one industry accounted for more than 19% of total business R&D in the United States in 2008[40] (figure 4-17 and appendix table 4-46), based on OECD's Analytical Business Enterprise R&D-Statistical Analysis Database (ANBERD-STAN) (OECD 2011a). This is largely a result of the size of business R&D expenditures in the United States, which makes it difficult for any one sector to dominate. However, the diversity of R&D investment by industry in the United States is also an indicator of how the nation's accumulated stock of knowledge and well-developed S&T infrastructure have made it an attractive location for R&D performance in a broad range of industries.

Compared with the United States, smaller economies shown in figure 4-17 display much higher concentration in particular industries. For example, in South Korea, one of the world's top producers of communication, TV, and radio equipment industry, which includes semiconductors, this industry accounted for 46% of the country's business R&D.[41]

The spread of global production networks and value chains is also reflected in these indicators. Automotive manufacturers rank among the largest R&D-performing companies in the world (see sidebar, "Global R&D Expenses of Public Corporations"). The automotive industry has also highly distributed production and technical sites globally. Thus, countries that are home to major automotive MNCs and/or serve as host countries for MNCs affiliates, their part suppliers, or technical contractors, may have relatively larger share of motor vehicles R&D, as shown for Germany, the Czech Republic, and Turkey.

A significant trend in both U.S. and international business R&D activity has been the growth of R&D in the service sector. According to national statistics for recent years, the service sector accounted for 30% or more of all business R&D in 8 of the 19 OECD countries shown in figure 4-17 and less than 10% in only one of the countries. In the United States, service industries accounted for 32% of all business R&D in 2008.[42]

Internationally comparable data for selected non-OECD members are also available from the same database (ANBERD-STAN) (OECD 2011a). Percentage shares by industry of total business R&D for China, the Russian Federation, Singapore, South Africa, and Taiwan are given in appendix table 4-46. Among these economies, the communication, television, and radio equipment industry, which includes semiconductors, accounted for over 50% of all business R&D in Singapore (2008). Motor vehicle R&D accounted for 5% of business R&D in South Africa (2007); pharmaceutical R&D accounted for 3% in China (2009) and R&D in the computer, office and accounting machines industry accounted for 3% of the business R&D performed in Taiwan (2009). Among OECD countries, the service sector accounted for as little as 8% of business R&D in South Korea (2008) to as much as 65% in Israel (2010). For the non-OECD economies examined here, the percentage of business R&D accounted for by the service sectors ranged from 7% in Taiwan (2009) to 86% in the Russian Federation (2009).

Business Support for Academic R&D

For most countries, the government is (and has long been) the largest source of academic research funding. (See sidebar, "Government Funding Mechanisms for Academic Research.") Nevertheless, business support for academic R&D has increased over the past 25 years among the OECD countries as a whole. It was around 3% in the early 1980s, nearly 6% in 1990, almost 7% in 2000, and still around 7% in 2007.

In the United States, business support for academic R&D was about 4% in the early 1980s and rose to about 7% later in that decade and through the 1990s, but has dropped to below 6% since 2000. Some commentators note concern about this recent trend of decline, given the significant role that academic basic research plays in providing a foundation for technological innovation that is important to the national economy.

The proportion of academic R&D financed by business is more varied among the other top R&D-performing countries (figure 4-18). Among the other top seven R&D-performing countries, the highest figure for business support of academic R&D is currently in China (37%). The figures are also high in Germany (15%) and South Korea (12%), whereas Japan, France, and the United Kingdom occupy the low end, with figures under 5%.

Notes

[36] See appendix tables 4-43 through 4-46.
[37] EU real growth over 1999–2009 and the 1999 share are based on all current 27 EU member countries.
[38] For related 2008 data, see appendix table 4-44.
[39] Some analysts argue that the low nondefense GBAORD share for economic development in the United States reflects the expectation that businesses will finance industrial R&D activities with their own funds. Moreover, government R&D that may be useful to industry is often funded with other purposes in mind, such as defense and space, and is therefore classified under other socioeconomic objectives.
[40] Data for the United States included in the Organisation for Economic Co-operation and Development's Analytical Business Enterprise R&D (ANBERD)-Statistical Analysis Database (STAN) are preliminary (NSF 2010a); final statistics were used for the business R&D analyses earlier in chapter 4.
[41] For information on global valued added, trade, and related statistics for high technology industries, see chapter 6.
[42] Share in OECD/ANBERD based on preliminary U.S. business R&D data (NSF 2010a); final U.S. statistics were used elsewhere in chapter 4.
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