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Chapter 6. Industry, Technology, and the Global Marketplace

Highlights

Knowledge- and Technology-Intensive Industries in the World Economy

KTI industries have been a major and growing part of the global economy, with the United States having the highest KTI share of GDP of any large economy.

  • Global value added of knowledge- and technology-intensive (KTI) industries, consisting of five knowledge-intensive (KI) service and five high-technology (HT) manufacturing industries, totaled $18.2 trillion in 2010. This represents 30% of estimated world gross domestic product (GDP) in 2010, compared with a 27% share in 1995.
  • The U.S. economy had the highest concentration of KTI industries among major economies (40% of U.S. GDP). The KTI concentrations for the European Union (EU) and Japan were 32% and 30%, respectively.
  • Major developing economies have lower KTI shares than developed economies. China's KTI industries created 20% of GDP in 2010 compared to 17% in 1995. The KTI shares in Brazil, India, and Russia were similar to China's.

Rising KTI shares in most countries have coincided with growth in productivity. But productivity growth in the world's developed economies since 2000 has been slower than in developing economies.

  • Labor productivity growth in the United States and other developed countries slowed from 1.9% in the 1990s to 1.3% from 2000 to 2008, coinciding with slackening growth in their per capita GDP.
  • Labor productivity growth in developing countries accelerated from 1.4% in the 1990s to 4.9% from 2000 to 2008, led by China, India, and Russia. China's labor productivity grew at a 10% annual average with its per capita GDP increasing from 8% to 20% of U.S. per capita GDP.

Worldwide Distribution of Knowledge- and Technology-Intensive Industries

The commercial KI service and HT manufacturing industries in the United States are collectively larger than in any other country. China's KI and HT industries have been growing rapidly, making China a major center of global activity.

  • The United States has larger output ($3.6 trillion) than any other country in commercial KI service industries (business, financial, and communications). However, the U.S. share of world output fell substantially in the last decade from 42% in 2000 to 33% in 2010.
  • China's world share of commercial KI service industries rose from 2% in 1995 to 7% in 2010, led by 20% average annual growth of its communications industry.
  • U.S. HT manufacturing industries have a larger share of global output than any other economy. The U.S. global share fell from 34% in 1998 to 28% in 2010.
  • China's share of the world's HT manufacturing rose sixfold from 3% in 1995 to 19% in 2010, surpassing Japan in 2007. Its share grew rapidly across all HT manufacturing industries, reaching nearly 50% in computers, 26% in communications, and 17%–18% in pharmaceuticals and semiconductors.

Global output of commercial KI services was flat and HT manufacturing declined in 2009 in the midst of the recession. Global output of commercial KI services and HT manufacturing recovered in 2010 with China and other developing economies leading the recovery.

  • Global output of commercial KI services was flat in 2009 as part of the worldwide recession. Output in developed countries declined by 1%. But output grew by 4% in developing economies, led by double-digit growth in China. Commercial KI services resumed growing in 2010, led by a 20% increase by developing countries.
  • Global output of HT manufacturing industries declined by 6% in 2009. It dropped by 7% for developed economies, but was flat in developing countries, with China growing by 9%. Global output bounced back in 2010, rising 14%, propelled by China and other developing countries.

Trade and Other Globalization Indicators

Worldwide, commercial KTI exports have grown faster than their KTI production, indicating increased globalization in these industries.

  • The export share of commercial KI production rose from 5% in 1995 to 8% in 2010 suggesting a modest rate of globalization. Advances in information and communications technology (ICT) and emerging capabilities in both developed and developing countries, such as India, are driving globalization of commercial KI services.
  • The export share of HT manufacturing production rose from 36% to 53% in 2006 before drifting downward to 50% in 2010.

The United States is the second-largest exporter behind the EU of commercial KI services and runs a large surplus. In HT goods, the United States has lost export share and faces a widening trade deficit.

  • The United States exported $290 billion of commercial KI services (business, computer and information services, finance, and royalties and fees), with a 22% share of global exports behind the EU's 30%. The Asia-8 and China are the next two largest exporters with global shares of 15% and 8%, respectively.
  • The U.S. trade surplus in commercial KI services rose from $55 billion in 2000 to reach more than $100 billion in 2009; during this same period, however, the U.S. trade deficit in HT manufacturing goods grew.
  • China's and the Asia-8's surpluses in commercial KI services have grown over the last decade to reach about $30 billion in 2009. The increase in the Asia-8's surplus reflects rising surpluses in computer and information services.

While the U.S. share of global HT exports declined, China became the world's largest exporter of HT goods.

  • The U.S. share of global HT exports rose from 19% to 22% from 1995 to 1998 before declining to 14%–15% during the period from 2003 to 2010 because of losses in communications and computers. The U.S. deficit in HT trade widened from $67 billion to $94 billion during the 2000s, driven by rising deficits in communications and computer goods.
  • China's share of global HT goods exports more than tripled, from 6% in 1995 to 22% in 2010, making it the single largest exporting country for HT products. China's trade surplus in these products increased from less than $20 billion in 2002 to nearly $160 billion in 2010, largely because of rising surpluses in computer and communications goods.
  • China's rise as the world's major assembler and exporter of many electronic goods is reflected in a sharp increase in China's share of imports of intermediate communications and computer goods originating from other Asian economies. Most of China's exports of electronics goods are destined for the United States, the EU, and Japan.

A separate measure of U.S. HT trade shows patterns in U.S. HT trade similar to those found in internationally comparable trade data.

  • According to U.S. Census data on U.S. trade in advanced technology products (ATP), the United States first generated a trade deficit in ATP in 2002 that widened to $82 billion by 2010. The deficit in ICT products alone reached more than $120 billion in 2010. Aerospace and electronics generated a combined surplus of $70 billion in 2010.
  • The largest U.S. trade deficit in ATP was $87 billion with China, its largest trading partner country in total goods and ATP trade, followed by $17 billion with the Asia-8, and $8 billion with Japan. ICT deficits with these Asian economies were higher, offset by lower deficits or positive trade balances in other ATP categories.

U.S. foreign overseas investment in KTI industries exceeds foreign investment in U.S. KTI industries.

  • The stock of U.S. overseas investment in KTI industries was $1.1 trillion, and the stock of foreign direct investment in the United States in these industries was almost $700 billion.
  • The bulk of U.S. overseas KTI investment was in service industries ($1 trillion), with less than 15% in HT manufacturing industries ($125 billion) in 2009.
  • Financial services had by far the largest share in the stock of U.S. overseas investment in commercial KI service industries (74%), followed by business services (19%). Among HT manufacturing industries, pharmaceuticals (41%) and semiconductors (25%) had the largest shares.
  • The stock of foreign direct investment (FDI) in the United States in commercial KI service industries stood at $433 billion in 2009; FDI in U.S. HT manufacturing industries stood at $222 billion.
  • Financial services had the largest share (68%) in the stock of FDI in commercial KI service industries, followed by business services (19%) and communications (13%). Pharmaceuticals accounted for 68% of the share for HT manufacturing industries.

Innovation-Related Indicators of the United States and Other Major Economies

U.S. firms in commercial KTI industries reported much higher incidences of innovation than other industries.

  • Four HT manufacturing industries—computers, communications, scientific and measuring instruments, and pharmaceuticals—reported rates of product and process innovation that were at least double the U.S. manufacturing sector average.
  • In the U.S. nonmanufacturing sector, software firms lead, with 77% of companies reporting the introduction of a new product or service compared to the 7% average for all nonmanufacturing companies. Innovation is also two to three times higher than the nonmanufacturing average in telecommunications/Internet industries.

The U.S. share of patents granted by the U.S. Patent and Trademark Office has declined over the last decade, which may indicate increased technological capacity abroad.

  • The U.S. resident share of U.S. Patent and Trademark Office (USPTO) patents granted has gradually fallen since the late 1990s, from 54% in 1998 to 52% in 2002 and down to 49% in 2010. The EU, Japan, and the Asia-8 were the main recipients of USPTO patents granted to non-U.S. countries, with a collective share of nearly 90%.
  • The United States has a higher concentration relative to other major economies in USPTO patenting activity in several advanced and science-based technologies, including ICT, automation, biotechnology, and pharmaceuticals.
  • The United States has a similar share to the EU and Japan in patents sought in three of the world's largest markets—the United States, the EU, and Japan. The United States, the EU, and Japan have similar shares of these high-value patents, accounting for nearly 90% of the total.
  • U.S. microbusinesses (those with fewer than five employees) in industries classified as HT by the Bureau of Labor Statistics (BLS) grew much faster than in other industries during the period 2000–08. Growth of microfirms in services classified as HT was three times that of other service industries.
  • The three HT services with the largest number of microbusinesses are management, scientific, and technical consulting; computer systems design; and architectural and engineering. HT manufacturing industries with large number of microfirms include navigational, measuring, and electromedical equipment and semiconductors.

Investment and Innovation in Clean Energy and Technologies

According to commercial investment data from Bloomberg, China in 2010 provided more investment in clean energy and technologies than any other country.

  • Chinese commercial investment in clean energy and technologies, which Bloomberg defines to include wind, solar, biofuels, and energy efficiency, rose exponentially from less than $1 billion in 2004 to $53 billion in 2010. The bulk of China's investment was in wind energy ($45 billion).
  • The United States and the EU each provided about $30 billion in clean energy finance in 2010. Wind energy accounts for the largest share (60%) of U.S. investment, with solar the second largest.

The United States is the leading investor of venture capital in clean energy and technologies.

  • Worldwide venture capital investment in clean energy and technologies rose rapidly, more than quadrupling from $1 billion to $4 billion from 2004 to 2010. The United States is the largest source of this type of investment, providing more than 80% of global energy-related venture capital.
  • Two technologies, energy smart/efficiency and solar, dominate venture capital investment. Each has a 40% share.

According to data from the International Energy Administration (IEA), the United States in 2009 invested more in public research, development, and demonstration for clean energy and technologies than other countries/regions.

  • Global public research, development, and demonstration (RD&D) investment for clean energy and related technologies was an estimated $17 billion in 2009. IEA data cover renewable energy, nuclear, fuel cells, carbon capture and storage, and energy efficiency.
  • U.S. public RD&D investment in clean energy and technologies jumped from $2.8 billion in 2008 to $7.0 billion in 2009. However, this increase reflected one-time stimulus funding under the American Recovery and Reinvestment Act (ARRA). In 2010, U.S. public RD&D fell to $4.4 billion, when ARRA funding declined.
  • The EU and Japan each funded about $4 billion in 2009, equivalent to a 24% global share.