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


Trends in National R&D Performance

Growth in total U.S. R&D performance slowed noticeably in 2009, compared to the last several years, but the broader trend remains that R&D spending growth continues to significantly outpace growth of the U.S. economy as a whole.

  • Overall R&D performed in the United States in 2009 totaled an estimated $400 billion (current dollars)—somewhat below the $403 billion level in 2008, but well above the $377 billion in 2007. Adjusted for inflation, the 2009 estimate represents a $6 billion or 1.7% decline from 2008.
  • The 2009 slowdown primarily reflects a drop in business R&D in the face of the 2008–09 financial crisis and the economic recession. At the same time, R&D spending in other performing sectors continued to rise, notably for federal and academic R&D, in part because of the one-time federal R&D funding increase appropriated in the American Recovery and Reinvestment Act of 2009.
  • U.S. R&D performance has increased largely uninterrupted since 1953. Over the last 5 years (2004–09), annual growth in U.S. R&D spending averaged 5.8%, compared to annual average growth of 3.3% for U.S. gross domestic product (GDP). Indeed, over the last several decades, average annual growth in R&D spending has substantially outpaced that of GDP.

The business sector continues to account for most of both U.S. R&D performance and R&D funding.

  • The business sector performed an estimated $282 billion of R&D in 2009, or 71% of the U.S. total, drawing on business, federal sources, and other sources of R&D support. The business sector itself provided an estimated $247 billion of funding for R&D in 2009, or 62% of the U.S. total; almost all of which supported R&D performed by business.
  • The levels of business R&D performance and funding were both higher in 2008 than in 2009 ($291 billion and $259 billion, respectively). Even with the decline in 2009, expanded business spending has accounted for most of the nation's R&D growth over the last 5 years.
  • The academic sector is the second-largest performer of U.S. R&D, accounting for an estimated $54 billion in 2009, or about 14% of the national total.
  • The federal government is the second-largest funder of U.S. R&D, providing an estimated $124 billion, or 31% of the U.S. total in 2009.

U.S. R&D is dominated by development activities, largely performed by the business sector. The business sector also performs the majority of applied research, but most basic research is conducted at universities and colleges and funded by the federal government.

  • In 2009, basic research was about 19% ($76 billion) of total U.S. R&D performance, applied research was about 18% ($71 billion), and development was about 63% ($253 billion).
  • Universities and colleges historically have been the main performers of U.S. basic research—and accounted for about 53% of all U.S. basic research in 2009. The federal government remains the primary source of basic research funding, accounting for about 53% of all such funding in 2009.
  • The business sector is the predominant performer of applied research, accounting for 58% of all U.S. applied research in 2009. Business is also the largest source of funding for applied research, providing 48% in 2009.
  • Development is by far the largest component of U.S. R&D. Funding for development comes primarily from the business sector, 78% in 2009; nearly all of the rest comes from the federal government.

R&D and GDP Growth

Treating R&D as an investment, rather than as an expense, affects estimates of GDP growth.

  • When R&D is treated as an investment, estimates of average annual GDP growth between 1959 and 2007 are 0.07 points higher than when R&D is treated as an expense.
  • The difference in estimated average annual growth is higher in recent periods: 0.17 percentage points for 1995 to 2001 and 0.12 percentage points from 2002 to 2007.

U.S. Business R&D

Domestic R&D performed by the business sector reached $291 billion in 2008.

  • More than three-quarters of U.S. business R&D is performed in six industry groups—four in manufacturing (chemicals, computer and electronic products, aerospace and defense, and automotive) and two in services (software and computer-related products, and R&D services).

R&D by Multinational Companies

The majority of R&D by U.S. multinational companies (MNCs) continues to be performed in the United States. Outside the United States, R&D by U.S.-owned foreign affiliates is performed mostly in Western Europe, Canada, and Japan, followed more recently by other locations in the Asia-Pacific region.

  • In 2008, U.S. MNC parent companies and their majority-owned foreign affiliates performed $236.1 billion in R&D worldwide, according to the Bureau of Economic Analysis. This included $199.1 billion performed by the parent companies in the United States and $37.0 billion by their majority-owned foreign affiliates.
  • The share of R&D performed by Asia-located affiliates (other than in Japan) increased from 5.3% to 14.4% from 1997 to 2008. In particular, the share of U.S.-owned affiliates R&D performed in China, South Korea, Singapore, and India rose from a half percentage point or less in 1997 to 4% for China, just under 3% for South Korea, and just under 2% each for Singapore and India in 2008.
  • Majority-owned affiliates of foreign MNCs located in the United States (U.S. affiliates) performed $40.5 billion of R&D in 2008 virtually unchanged from the $41.0 billion they performed in 2007. Since 1999, the share of these companies in total business R&D has fluctuated narrowly between 13% and 15%.

Exports and Imports of R&D-Related Services

Trends in cross-border transactions in research, development, and testing (RDT) services are another indicator of global linkages.

  • In 2009, U.S. RDT exports and imports stood at $18.2 billion and $15.8 billion, respectively, for a balance of $2.5 billion.
  • In 2008, the proportion of RDT exports ($17.4 billion) to domestic U.S. business R&D performance ($290.7 billion) was 5.6%. This proportion was about 3.8% in 2001.
  • Most transactions in RDT services—around 85% of total annual RDT exports—occur within multinational companies.

Federal R&D

Federal spending on R&D has continued to grow, although at a slower pace, when adjusted for inflation, in the last several years. Defense continues to account for more than half of annual federal R&D spending. Health-related R&D accounts for the majority of federal nondefense R&D.

  • Eight federal agencies accounted for 97% of federal R&D spending in FY 2009: the departments of Commerce, Defense, Energy, Health and Human Services, and Homeland Security, and the National Science Foundation and National Air and Space Administration. Federal obligations for R&D have increased annually since the late 1990s. When adjusted for inflation, growth has been flatter after FY 2005.
  • In FY 2009, federal obligations for R&D reached $133.3 billion and an additional $3.6 billion for R&D plant. The American Recovery and Reinvestment Act of 2009 obligated an additional $8.7 billion for R&D and $1.4 billion for R&D plant for the same fiscal year.
  • In the last 10 years, federal funding for basic and applied research has grown faster in the life sciences, mathematics/computer sciences, and psychology than in other fields. In the environmental sciences, growth has not kept pace with inflation.
  • Over the last two decades, the greatest change in federal R&D priorities has been the rise in health-related R&D, which currently accounts for just over half of nondefense R&D spending.

Federal R&E Tax Credit

To counteract potential business underinvestment in R&D, the federal government makes available tax credits for companies that expand their R&D activities.

  • Business research and experimentation (R&E) tax credit claims were about $8.3 billion both in 2007 and in 2008.
  • Five industries accounted for 75% of R&E credit claims in 2008: computer and electronic products; chemicals, including pharmaceuticals and medicines; transportation equipment, including motor vehicles and aerospace; information, including software; and professional, scientific, and technical services, including computer and R&D services.

International R&D Comparisons

The top three R&D-performing countries: United States, China—now the second largest R&D performer—and Japan represented just over half of the estimated $1.28 trillion in global R&D in 2009.

  • The United States, the largest single R&D-performing country, accounted for about 31% of the 2009 global total, down from 38% in 1999.
  • Asian countries—including China, India, Japan, Malaysia, Singapore, South Korea, Taiwan, and Thailand—represented 24% of the global R&D total in 1999 but accounted for 32% in 2009, including China (12%) and Japan (11%).
  • The pace of real growth over the past 10 years in China's overall R&D remains exceptionally high at about 20% annually.
  • The European Union accounted for 23% total global R&D in 2009, down from 27% in 1999.

Wealthy economies generally devote larger shares of their GDP to R&D than do less developed economies.

  • The U.S. R&D/GDP ratio (or R&D intensity) was about 2.9% in 2009 and has fluctuated between 2.6% and 2.8% during the past 10 years, largely reflecting changes in business R&D spending.
  • In 2009, the United States ranked eighth in R&D intensity—surpassed by Israel, Sweden, Finland, Japan, South Korea, Switzerland, and Taiwan—all of which perform far less R&D annually than the United States.
  • Among the top European R&D-performing countries, Germany reported a 2.8% R&D/GDP ratio in 2008; France, 2.2%; and the United Kingdom, 1.9%.
  • The Japanese and South Korean R&D/GDP ratios were among the highest in the world in 2008, each at about 3.3%. China's ratio remains relatively low, at 1.7%, but has more than doubled from 0.8% in 1999.