1996 U.S. Industrial R&D: Firms Continue to Increase Their Investment

Sources of R&D Funds
Since the beginning of NSF's Survey of Industrial Research and Development, which has produced annual statistics since 1953, firms have contributed more each year toward the performance of research and development than during the prior year. Even after adjusting for inflation, current year investment exceeded the prior year's investment during 39 of the 44 survey years. During the ten-year period, 1987-96, the average annual increase in the amount of company-funded R&D was 8 percent, 5 percent after adjusting for inflation. Federal agencies decreased support for industrial R&D during all but 3 of those 10 years, an average of 3 percent per year, 6 percent after adjusting for inflation. The relationship between the sources of industrial R&D funding is illustrated in chart 1.

As shown in chart 1, in the early 1960s, the Federal Government contributed more funds for industrial R&D performance, mostly in the form of defense-related contracts and grants, than firms contributed from their own resources. During 1967 and 1968, both sources contributed an average of 31 billion inflation-adjusted dollars per year. During 1969, company-funded industrial R&D exceeded federally funded industrial R&D by about $5 billion and this funding difference steadily increased to $88 billion in 1996, after adjusting for inflation. As a percentage share of total industrial R&D funding, the Federal portion peaked during 1959 at 59 percent. Since then, the Federal share has been steadily declining, except for a seven-year period beginning in 1980 when it hovered around 31 percent. During 1996, federally funded industrial R&D accounted for 16 percent of the total amount performed. Conversely, during the period 1959-96, the share that companies contributed to the performance of industrial R&D increased from 41 to 84 percent. Focusing on recent trends, 1993-96 survey statistics indicate that Federal funding, in constant dollars, stayed in the $21-22 billion range while company funding increased from $92.2 billion during 1993 to $110.0 billion during 1996.

Manufacturing and Nonmanufacturing R&D
An increasing amount of R&D performance by U.S. industry has been undertaken by firms in the nonmanufacturing industries during the past decade. During the late 1950s and up until the late 1980s, over 90 percent of industrial R&D was performed by manufacturing firms. Beginning in 1988, R&D performed by nonman-ufacturing firms exceeded 10 percent of total industrial R&D, and that share increased to 23 percent in 1996. During the entire 1988-96 period, nonmanufacturing R&D increased at an average annual rate of 15 percent while R&D performed by manufacturers increased at an annual rate of 3 percent, although toward the end of this period, during 1995-96, the rate slowed to 2 percent for nonmanufacturing R&D and increased to 12 percent for manufacturing R&D. After adjusting for inflation, the rates for 1988-96 were 12 percent for nonmanufacturing R&D and less than 1 percent for manufacturing R&D. For 1995-96, the rates were less than 1 percent and 9 percent, respectively.

Company funding.
Increased company funding accounted for most of the growth in the performance of R&D by both manufacturers and firms in nonmanufacturing industries during the period 1988-96. Manufacturing companies increased performance of R&D funded from their own resources by an average of 6 percent per year-from $59.4 billion in 1988 to $91.8 billion in 1996. Nonmanufacturing firms increased their funding by 19 percent per year-from $7.3 billion in 1988 to $29.2 billion in 1996. After adjusting for inflation, the percentages were 2 percent and 15 percent, respectively. Among manufacturing firms that performed the largest amount of R&D funded with their own resources during 1996 were makers of motor vehicles ($14.5 billion), electronic components ($12.5 billion), drugs and medicines ($9.8 billion), professional and scientific instruments ($8.2 billion), and office, computing, and accounting machines ($8.1 billion).

Among the largest nonmanufacturing performers of company-funded R&D were business (including computer- related) service firms ($10.3 billion), trade industries ($6.3 billion), telephone communications firms ($3.9 billion), and research, development, and testing labs ($3.8 billion).

Statistics on company-funded R&D performed during 1995 and 1996 are compared in table 2.

Federal funding.
During the period 1988-96, federally funded R&D performed by manufacturing firms decreased an average of 4 percent per year-from $27.1 billion in 1988 to $20.0 billion in 1996-and increased for firms in the nonmanufacturing industries an average of 1 percent per year-from $2.7 billion in 1988 to $3.6 billion in 1996. However, toward the end of the period, performance of federally funded R&D by manufacturers increased 6 percent-from $18.8 billion in 1995 to $20.0 billion in 1996-and decreased 21 percent for non-manufacturing R&D-from $4.6 billion in 1995 to $3.6 billion in 1996. After adjusting for inflation, funding for both sectors during 1988-96 decreased at annual rates of 7 percent for manufacturing and 2 percent for nonmanu-facturing. During 1996, aircraft and missile producers performed the most federally funded R&D among manufacturers ($10.5 billion of the $20.0 billion total), and research, development, and testing labs performed the most federally funded R&D among firms in the nonmanufacturing industries ($1.7 billion of the $3.6 billion total).

Definition of Industrial Research and Development
Industrial R&D is: the pursuit of a planned search for new knowledge, whether or not the search has reference to a specific application (basic research); the application of existing knowledge to problems involved in the creation of a new product or process (applied research); or the application of existing knowledge to problems involved in the improvement of a present product or process (development) by persons trained, either formally or by experience, in engineering or in the physical, biological, mathematical, statistical or computer sciences and employed by a publicly or privately owned firm engaged in for-profit activity in the United States.

Statistical Reports
This Data Brief is the first publication of statistics and information from the 1996 Survey of Industrial Research and Development. The annual report, Research and Development in Industry: 1995-96, will contain the full set of approximately 70 tables available from the survey. To provide users with the most timely statistics possible while the annual report is being prepared, a set of advanced release tables is available from the Internet and mailing addresses below. Both the advanced release tables and the annual report present R&D statistics by industry, size of company, sources of funds, and character of R&D. They also provide historical trends in R&D; R&D as a percent of net sales; R&D contracted to outside organizations and performed outside the United States; sales and total employment of R&D-performing companies; and employment and cost of R&D scientists and engineers, and state statistics. The annual report presents technical information on the survey sample and processing and additional analysis of the statistics.

This Data Brief was prepared by:

Raymond M. Wolfe
Division of Science Resources Studies
National Science Foundation
4201 Wilson Boulevard, Suite 965
Arlington, VA 22230
703-306-1772 Ext. 6936