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Indicators 2002
Introduction Overview Chapter 1: Elementary and Secondary Education Chapter 2: Higher Education in Science and Engineering Chapter 3: Science and Engineering Workforce Chapter 4: U.S. and International Research and Development: Funds and Alliances Chapter 5: Academic Research and Development Chapter 6: Industry, Technology, and the Global Marketplace Chapter 7: Science and Technology: Public Attitudes and Public Understanding Chapter 8: Significance of Information Technology Appendix Tables
Chapter Contents:
R&D Support in the United States
R&D Performance in the United States
Research Alliances: Trends in Industry, Government, and University Collaboration
International Comparisons of National R&D Trends
International Industrial R&D Investments
Selected Bibliography
Appendix Tables
List of Figures
Presentation Slides

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Figure 4-1

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Figure 4-2

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Figure 4-3

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Figure 4-4

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Figure 4-5

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Figure 4-6

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Figure 4-7

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Figure 4-8

U.S. and International Research and Development:  Funds and Alliances

R&D Support in the United States

National R&D Growth Trends
Trends in Federal R&D Support by National Objective, Federal Agency, and Performer Sector
The Federal R&D Tax Credit
Historical Trends in Non-Federal Support

Since 1994, R&D in the United States has risen sharply, from $169.2 billion to an estimated $264.6 billion in 2000.[1] In real terms (adjusting for inflation), this rise has been from $176.2 billion to $247.5 billion in constant 1996 dollars, reflecting an annual real growth rate of 5.8 percent. The increase of $71.3 billion 1996 dollars between 1994 and 2000 is the greatest single real increase for any six-year period in the history of the R&D data series, which began in 1953. (See figure 4-1 figure.) The consistent pattern of R&D growth is noteworthy, implying a broad-based, increased interest in the promotion of R&D activities. See sidebar, "Definitions of Research and Development."

By comparison, gross domestic product (GDP), the main measure of the nation’s total economic activity, grew in real terms by 4 percent per year between 1994 and 2000. Thus, R&D has generally been outpacing the growth of the overall economy since 1994. As a result, R&D as a proportion of GDP has risen from 2.40 percent in 1994 to 2.66 percent in 2000.

Organizations that conduct R&D often receive outside funding; conversely, organizations that fund R&D often do not perform all R&D themselves. Therefore, in any discussion of the nation’s R&D, a distinction must be made between where the money came from originally (R&D expenditures characterized by source of funds) and where the R&D is actually being performed (R&D expenditures categorized by performer).

Private industry, which provided 68.4 percent ($181.0 billion) of total R&D funding in 2000, pays for most of the nation’s R&D. Private industry itself used nearly all of these funds (98.1 percent) in performing its own R&D; most of the funds (70.9 percent) were used to develop products and services rather than to conduct research. In 2000, the Federal Government provided the second largest share of R&D funding, 26.3 percent ($69.6 billion), and the other sectors of the economy (i.e., state governments, universities and colleges, and nonprofit institutions) contributed the remaining 5.3 percent ($14.0 billion). (See figures 4-1 figure, 4-2 figure, and 4-3 figure; and text table 4-1 text table.)

Briefly, in terms of R&D performance—and discussed in greater detail below—industry in 2000 accounted for an even larger share of the total (74.6 percent), followed by universities and colleges (11.4 percent) and the Federal Government (7.2 percent). Federally Funded Research and Development Centers (FFRDCs), which are administered by various industrial, academic, and nonprofit institutions, accounted for an additional 3.5 percent, and other nonprofit organizations accounted for 3.3 percent. (See text table 4-1 text table.) [2]

National R&D Growth Trends top of page

Between 1953 and 1969, R&D expenditures grew substantially at a real annual rate of 8.2 percent. However, starting in 1969 and for nearly a decade thereafter, R&D growth failed to keep up with either inflation or general increases in economic output. In fact, between 1969 and 1975, real R&D expenditures declined by 0.9 percent per year, as both business and government tended to deemphasize research programs (See figure 4-1 figure.) Federal funding, in particular, fell considerably during this period—down 2.9 percent in real terms, which was felt in both defense- and nondefense-related programs.

The situation turned around in the mid-1970s. Following an economic recovery from the 1974 oil embargo and the 1975 recession, R&D expenditures increased in real terms by approximately 74.8 percent from 1975 to 1985 (5.7 percent per year) compared with a 40.0 percent rise in real GDP over the same period. During the first half of this period (1975–80), there was considerable growth in Federal R&D funding for nondefense activities. Although defense-related R&D expenditures rose as well, much of the Federal R&D gain was attributable to energy-related R&D (particularly nuclear energy development) and to greater support for health-related R&D. Non-Federal R&D increases were concentrated in industry and resulted largely from greater emphasis on energy conservation and improved use of fossil fuels. Consequently, energy concerns fostered increases in R&D funding by both Federal and non-Federal sources. Support for energy R&D rose more than 150 percent in real terms between 1974 and 1979 and accounted for approximately one-half of the national increase in real R&D spending.

Overall, the 1975–80 R&D recovery witnessed an average growth rate of 4.5 percent per year. That annual rate remained between 4 and 5 percent through 1982, although the early 1980s saw a heavy shift toward defense-related activities. As a result of these increases in defense R&D, growth in real R&D expenditures accelerated to an average annual rate of 8.5 percent over 1982–85. Such rapid growth had not been seen since the Sputnik era of the early 1960s.

On average, R&D spending increased 7.0 percent per year in real terms in the first half of the 1980s, then again changed abruptly. In the nine years from 1985 to 1994, average annual R&D growth after inflation slowed to 1.4 percent, vis-à-vis a 2.8 percent annual real growth in GDP. Reductions in both Federal and non-Federal funding of R&D, as a proportion of GDP, had contributed to this slowing. However, it is primarily the decline in real Federal R&D funding that contributed to the slow growth of R&D in the early 1990s.[3]

This downward trend was reversed again in 1994, caused by substantial increases in industrial R&D, most notably in the computer and other information technology sectors.[4] As already indicated, R&D in the United States grew in real terms by 5.8 percent per year between 1994 and 2000, despite little real growth (0.5 percent per year) in Federal R&D support. During the same period, industrial support for R&D grew at a real annual rate of 8.6 percent. Much of this increase might be explained by the favorable economic conditions that generally existed during this period.

Trends in Federal R&D Support by National Objective, Federal Agency, and Performer Sector top of page

Federal Support as a Share of the Nation’s R&D Efforts

In recent years, the Federal Government has contributed smaller shares of the nation’s R&D funding. The Federal Government had once been the main provider of the nation’s R&D funds, accounting for 53.9 percent in 1953 and as much as 66.8 percent in 1964. Its share of R&D funding first fell below 50 percent in 1979 and remained between 44 and 47 percent from 1980 to 1988. Since then, its share has fallen steadily to 26.3 percent in 2000, the lowest ever recorded in the history of the NSF’s R&D data series. This decline in the Federal Government share, however, should not be misinterpreted as a decline in the actual amount funded. Federal support in 2000 ($69.6 billion), for example, actually reflects a 0.8 percent increase in real terms over its 1999 level. Because industrial funding increased much faster (see above), Federal support as a proportion of the total has continued to decline.

Federal R&D funding, in absolute terms, expanded between 1980 and 2000, from $30.0 to $69.6 billion, which, after inflation, amounted to a small, real growth rate of 1.1 percent per year. This rate, however, was not uniform across the period. From 1980 to 1985, Federal R&D funding grew on average by 6.3 percent in real terms annually. Nearly all of the rise in Federal R&D funding during the early 1980s was due to large increases in defense spending.

Federal support slowed considerably beginning in 1986, reflecting the budgetary constraints imposed on all government programs, including those mandated by the Balanced Budget and Emergency Deficit Control Act of 1985 (also known as the Gramm-Rudman-Hollings Act) and subsequent legislation (notably the Budget Enforcement Act of 1990, which legislated that new spending increases be offset with specific spending cuts). Between 1988 and 1994, Federal R&D support per year declined in real terms from $75.0 billion to $63.3 billion in constant 1996 dollars, but by 2000 had increased slightly to $65.1 billion. From 1996 to 2000, however, the direction of Federal R&D had shifted; for example, Federal support to academia, as a percentage of total Federal support, had risen from 22.2 to 25.1 percent.

Federal Support by National Objective

Defense- and Space-Related R&D. Defense-related R&D, as a proportion of the nation’s total R&D, has shifted substantially. From 1953 to 1959, it rose from 48.0 to 54.3 percent; it then declined to a relative low of 24.3 percent in 1980. From 1980 to 1987, it climbed to 31.8 percent. It has fallen substantially since then, reaching a low of 13.6 percent in 2000. (See figure 4-4 figure.)[5]

Space-related R&D funding, as a percentage of total R&D funding, reached a peak of 20.9 percent in 1965, during the height of the nation’s efforts to exceed the Soviet Union in space travel. It then declined to a low of 3.0 percent in 1986. By 1995, it climbed back up to 4.5 percent, before, once again, slipping to 3.3 percent in 2000. Federal support for civilian-related (that is, nondefense-nonspace) R&D programs, as a percentage of total U.S. R&D, has been declining steadily since 1994, when it was 11.6 percent. It was 9.4 percent in 2000, the lowest since 1962 (when it had been 9.1 percent).

In 1980, the Federal budget authority for defense-related R&D was roughly equal to that for nondefense R&D.[6] (See insert in figure 4-5 figure.) As a result of modifications to U.S. security measures in an evolving international arena, a defense-related R&D expansion occurred in the early and mid-1980s. For example, defense activities of the Department of Defense (DOD) and the Department of Energy (DOE) accounted for approximately one-half of the total Federal R&D budget authority in 1980. By 1986, such defense-related activities peaked at 69 percent of the Federal R&D budget authority. (See figure 4-5 figure.) This defense-related R&D expansion was followed by a period of defense-related R&D reductions in the late 1980s and the 1990s. Nondefense R&D, on the other hand, has been increasing steadily since 1983. For fiscal year (FY) 2001, the preliminary budget authority for defense R&D and for nondefense R&D are about equal ($41.4 and $41.3 billion, respectively) and are 42.2 and 43.3 percent higher in real terms than their respective 1980 levels.

Of all the money authorized to be spent by the Federal Government on defense activities in 2001, according to the Federal budget authority, R&D (most of which is development) accounts for 14 percent. In contrast, R&D accounts for about 3 percent of the Federal nondefense budget authority, although many nondefense functions have much higher proportions. (See text table 4-2 text table.) The budget allocation for defense programs declined by an average real annual rate of 1.7 percent from FY 1986 to FY 2001.

Civilian-Related R&D. Since 1986, the Federal budget authority for civilian-related R&D grew faster than that for defense-related R&D. In particular, the budget allocation for health- and space-related R&D increased substantially between FY 1986 and FY 2001, with average real annual growth rates of 5.8 and 5.0 percent, respectively. (As indicated in figure 4-5 figure, most of this growth in the budget authority for space-related R&D occurred between FY 1986 and FY 1991.)

With regard to nondefense objectives (or "budget functions"), R&D accounts for 71.6 percent of funds for general science of which 80.7 percent is devoted to basic research. (See text table 4-2 text table.) R&D accounts for only 7.4 percent of funds for natural resources and the environment, nearly all of which (91.7 percent) is devoted to applied R&D. Among funds for health, R&D represents 11.1 percent, most of which (55.1 percent) is devoted to basic research and nearly all of which is directed toward National Institutes of Health (NIH) programs.

At first glance, the R&D budget authority for energy appears to have declined rapidly in recent years, notably, from $2.3 billion in FY 1997 to only $0.9 billion in FY 1998 in constant 1996 dollars (as shown in figure 4-5 figure). However, this effect was not an actual decline in economic resources devoted to energy R&D but merely the result of reclassification. Beginning in FY 1998, several DOE programs were reclassified from "energy" to "general science," so that the drop in energy R&D was equally offset by a rise in general science from $2.9 to $4.2 billion in constant 1996 dollars. (See also sidebar, "The Federal Science and Technology Budget and Related Concepts.")

Understanding the Growth in Federal Health-Related R&D. As illustrated in figure 4-5 figure, the budget allocation for health-related R&D increased dramatically between FY 1982 and FY 2001, with an average real annual growth rate of 5.8 percent. As a result, health-related R&D rose from representing roughly one-quarter (27.5 percent) of the Federal, nondefense R&D budget allocation in FY 1982 to nearly one-half (45.6 percent) by FY 2001. Many individuals in the science community have expressed the concern that health-related R&D has received the lion’s share of increases in Federal support for R&D, whereas the other broad areas (e.g., space, general science, energy, and the environment) have experienced much lower growth, or even declines, in Federal support.

Although there is no consensus as to why health-related research has continued to receive increased Federal support, the current framework under which the Federal Government provides support for health and medical research can be traced back to important position statements made in the aftermath of World War II. These positions were expressed in two important reports: a 1947 report by J. Steelman entitled "Science and Public Policy" and a 1945 report by V. Bush entitled "Science—The Endless Frontier: A Report to the President on a Program for Postwar Scientific Research." These reports promoted support for other fields of science, but their specific focus on the topic of health research has supported the argument for growth in its Federal support since. In the early 1970s, medical research was promoted by the nation’s war on cancer, and in the 1980s it was promoted by the nation’s (and the world’s) concern over the acquired immune deficiency syndrome (AIDS) epidemic (Jankowski 2001a). Growth in health-related R&D in the 1990s has supported research on cancer and AIDS as well, but a great deal of the new funding has been directed toward other disease areas. Part of the reason for the observed growth of health-related R&D stems from opportunities afforded by biotechnology research advances, but perhaps part of the growth comes also from the influence of disease-specific lobbying groups.

R&D by Federal Agency

According to preliminary data provided by Federal agencies, DOD will obligate the most funds among Federal agencies for R&D support in FY 2001, $36.4 billion (44.6 percent) of all Federal R&D obligations. (See text table 4-3 text table.) The bulk of these funds ($32 billion) will be for development as compared with basic or applied research. The agency obligating the second largest amount in R&D support is the Department of Health and Human Services (HHS) with $19.2 billion, most of which ($10.4 billion) will be for basic research, followed by the National Aeronautics and Space Administration (NASA) with $9.6 billion (most of which will be for development), DOE with $6.8 billion (nearly equally divided among basic research, applied research, and development), and NSF with $3.2 billion (almost all of which will be for basic research). Together, these five agencies account for 92.2 percent of all estimated Federal support for R&D in 2001: 93.1 percent of Federal support for basic research, 78.7 percent of Federal support for applied research, and 97.7 percent of Federal support for development.

The majority of HHS’s R&D support (57 percent) is directed toward academia. By preliminary estimates, HHS accounted for 61.9 percent of all Federal R&D obligations to universities and colleges, excluding university-administered FFRDCs in FY 2001. (See text table 4-4 text table.) A total of 23.6 percent is spent internally, mostly in NIH laboratories. HHS also accounts for 71.6 percent of all Federal R&D obligations for nonprofit organizations in FY 2001. Approximately 6 percent of HHS R&D obligations are slated for industrial firms.

NSF and DOD are the other leading supporters of R&D conducted in academic facilities. (See text table 4-4 text table.) Universities and colleges account for 82.8 percent of NSF’s R&D budget. The bulk of the remaining NSF budget is divided between university-administered FFRDCs (6.1 percent), other nonprofit organizations (5.8 percent), and industry (3.6 percent). In FY 2001, DOD provides only 4.2 percent of its R&D support to universities and colleges, in contrast to 69.5 percent to industry and 23.6 percent to Federal intramural activities. By comparison, DOE provides 10.4 percent of its support to universities, 16.8 percent to industry, 12.8 percent to Federal intramural activities, and 35.3 percent to FFRDCs administered by universities and colleges.

Of all Federal obligations of R&D funds to FFRDCs in FY 2001, DOE accounted for 61.3 percent, NASA for another 19.8 percent, and DOD for 11.5 percent. More than one-half (59.1 percent) of DOE’s R&D support is directed toward FFRDCs.

Unlike the other Federal agencies just mentioned, the U.S. Department of Agriculture (USDA), Department of Commerce (DOC), and Department of the Interior (DOI) spend most of their R&D obligations internally. Most of the R&D supported by these agencies is mission-oriented and conducted in their own laboratories, which are run, respectively, by the Agricultural Research Service, the National Institute for Standards and Technology (NIST), and the U.S. Geological Survey.

In contrast to total R&D obligations, which are devoted primarily to extramural R&D activities, only three agencies had intramural R&D expenditures that exceeded $1 billion in 2001 (which includes the costs associated with planning and administering extramural R&D programs): DOD, HHS (which includes NIH), and NASA. Together, these three agencies account for 76.2 percent of Federal intramural R&D.

Federal Support to Academia

The Federal Government has long provided the largest share of R&D funds used by universities and colleges. In the early 1980s, Federal funds accounted for roughly two-thirds of the academic total. By 1991, however, that share had dropped to 58.6 percent, and it has since remained between 58 and 60 percent. Although this share of funding has not changed much in recent years, the actual amount of funding, in real terms, has grown on average by 5.1 percent per year between 1985 and 1994 and by 3.2 percent between 1994 and 2000. For more information on academic R&D, see chapter 5.[7]

Federal Funding to Industry

The greatest fluctuation in Federal support has been in Federal funds to industry (excluding industry-administered FFRDCs), which rose from a low of $7.4 billion in constant 1996 dollars in 1953 (when the NSF time series began) to a relative maximum of $32.6 billion in 1966. [8] (See figure 4-7 figure.) It then declined to a relative minimum of $19.7 billion (constant 1996 dollars) in 1975; rose sharply to $37.1 billion by 1987; and fell sharply again to $21.1 billion by 1994. From 1994 to 2000, Federal support to industry has been relatively unchanged, ranging from $18.4 to $21.1 billion in constant 1996 dollars. Most recently, between 1999 and 2000, there was a 4.6 percent decline, in real terms, in Federal funds for industrial R&D activities. Overall, the Federal share of industry’s performance has been steadily declining since its peak of 56.7 percent reached in 1959. Much of that decline can be attributed to declines in Federal funding to industry for defense-related R&D activities.

Federal R&D financing for specific industrial sectors (including the industry FFRDCs that belong to those sectors) has varied markedly across time and across different industries. The Federal Government provided $22.5 billion for industry R&D in 1999, the most recent year for which detailed data by industrial category are available. Aerospace companies (or the industrial sector "aircraft and missiles") received 40.5 percent of Federal R&D funds provided to all industries. Consequently, 63.2 percent of the aerospace industry’s R&D dollars came from Federal sources; the remaining 36.8 percent came from those companies’ own funds. In comparison, the drugs and medicines sector in 1999 financed 100 percent of its R&D from company funds; machinery, 93.4 percent; computer and electronic products, 83.3 percent; transportation equipment other than aircraft and missiles, 95.3 percent; information services, 96.8 percent; and professional, scientific, and technical services, 75.7 percent.[9] See sidebar, "National Science Board Study on Federal Research Resources: A Process for Setting Priorities."

The Federal R&D Tax Credit top of page

In addition to direct R&D funding and government-performed research, the Federal Government provides a research and experimentation (R&E) tax credit aimed at stimulating research investment. In particular, the credit reduces the costs of using internal funds to fund private R&D activities. This tax credit on incremental research expenditures has been in place in the United States since 1981, having been renewed 10 times because of its temporary status. Most recently, the R&E tax credit was reinstated in the Tax Relief Extension Act of 1999 through June 2004.[10] As of this writing, the FY 2002 budget of the Bush administration proposes to make the R&E credit permanent (U.S. OMB 2001a).

The standard policy justification for a tax stimulus is that results from research, especially long-term research, often are hard to capture privately, as others might benefit directly or indirectly from it. Therefore, businesses might engage in levels of research below those that would benefit a broader constituency, such as a whole industry or the nation. In fact, many developed economies have in place some form of tax credit for research activity.[11]

Structure of the Credit and Tax Data

A regular credit is provided for 20 percent of qualified research above a base amount based on the ratio of research expenses to gross receipts for 1984–88. Younger companies follow different formulas. An alternative R&E credit is available for corporate fiscal years that began after June 30, 1996.[12] Both the regular and the alternative R&E credits include provisions for basic research payments paid to qualified universities or scientific research organizations above a certain base period amount. Qualified research covers "research undertaken to discover information, technological in nature, and useful in the development of a new or improved business component" (U.S. IRS 2000).[13] Because the focus is on domestic research performance, R&D conducted in the United States by foreign firms also is covered, whereas R&D conducted abroad by foreign affiliates of U.S. parent companies is not eligible.

The types of firms that claim the credit and their level of participation are affected by the provisions of the credit, including the definition of covered R&D and the spending base, offsetting credits or caps, and its temporary status. In addition, empirical studies of the effects of the tax credit also have to separate purely accounting effects, such as possible reclassification of activities or timing effects, from real changes in research spending. Thus, to assess precisely whether a particular tax incentive is inducing the kinds of research activities targeted by the credit is difficult at best. Nevertheless, Hall and Van Reenen (2000), based on a review of U.S. studies from the early 1980s to late 1990s, conclude that a dollar in tax credit likely stimulates a dollar of additional R&D. As an empirical generalization, however, this conclusion might not apply fully to certain segments of R&D performers, such as small companies or startup firms.

Total R&E credit claims and number of returns applying for the credit are available from Statistics of Income, Internal Revenue Service (IRS). In 1998 (the latest year for which these data are available), more than 9,800 returns claimed $5.208 billion in R&E credits, up 18.4 percent from 1997 dollar claims (U.S. IRS 2001).[14] The unusual doubling of the credit over 1996–97 followed a 12-month gap in the credit. (See text table 4-5 text table). However, not all R&E claims are allowed because there is a limitation on the reduction of a company’s total tax liability. Most claimants applied for the regular 20 percent credit. In 1998, total basic research credits were $398 million, or 7.6 percent of the total R&E credit, claimed by 551 returns.

Nearly three-fourths of R&E credit claims come from manufacturing corporations in any given year. An analysis by Whang (1998) using 1995 tax data identified pharmaceuticals, motor vehicles, aircraft, electronics, and computers as the industries with the largest claims. The author also reported that firms with at least $250 million in assets accounted for three-fourths of the dollar value of all credit claims for the same tax year. Another study, based on a 1998 survey sponsored by the Small Business Administration (SBA), found that only 71 of 194 (37 percent) small firms that responded to a question on the R&E tax credits reported claiming the credit (Cordes, Hertzfeld, and Vonortas 1999). Furthermore, only 28 of the survey firms claiming the tax credit reported that the credit stimulated additional R&D by an amount equal to or more than the amount of the credit. Of the small firms not claiming the credit, approximately one-half failed to exceed the statutory base for the credit, and about one-fourth considered the tax credit procedures too complicated to allow their participation.[15]

Federal Budget Impact

In the language of the Federal budget, R&E credits fall in the category of tax expenditures—government revenue losses due to preferential provisions. According to the Treasury Department, the largest tax expenditures are those associated with the individual income tax. Tax expenditures from corporate income taxes relate mostly to cost recovery for certain investments, including research activities. The outlay-equivalent measure is one of three accounting methods used to estimate these tax expenditures.[16] This method translates R&E credits in terms comparable to Federal R&D outlays. This allows a comparison of the cost of the tax expenditure with that of a direct Federal outlay (U.S. OMB 2001a).

According to this measure, tax credit claims in 1998 were equivalent to outlays of $3.270 billion, or 4.6 percent of direct Federal R&D outlays in FY 1998 (See figure 4-8 figure.) Although R&E claims data for tax year 2000 are not available, the credit generated an estimated outlay equivalent of $2.510 billion, or 3.4 percent of Federal R&D outlays in FY 2000. In constant 1996 dollars, the average outlay equivalent over 1981–2000 is $2.1 billion.

Historical Trends in Non-Federal Support top of page

R&D financing from non-Federal sources grew by 5.9 percent per year after inflation between 1953 and 1980. Between 1980 and 1985, concurrent with gains in Federal R&D spending, it grew by an even faster rate of 7.6 percent per year in real terms. It then slowed to 4.4 percent between 1985 and 1990 and to 3.3 percent between 1990 and 1995 but rose to 8.2 percent over the 1995–2000 period.

As already discussed, most non-Federal R&D support is provided by industry. Of the 2000 non-Federal support total ($195 billion), 92.8 percent ($181 billion) was company funded. Industry’s share of national R&D funding first surpassed that of the Federal Government in 1980, and it has remained higher ever since. From 1980 to 1985, industrial support for R&D, in real dollars, grew at an average annual rate of 7.7 percent. This growth was maintained through both the mild 1980 recession and the more severe 1982 recession. (See figure 4-1 figure.) Key factors behind increases in industrial R&D included a growing concern with international competition, especially in high-technology industries; the increasing technological sophistication of products, processes, and services; and general growth in defense-related industries, such as electronics, aircraft, and missiles.

Between 1985 and 1994, growth in R&D funding from industry was slower, averaging only 3.1 percent per year in real terms.This slower growth in industrial R&D funding was only slightly greater than the real growth of the economy over the same period (in terms of real GDP), which was 2.8 percent. In contrast, from 1994 to 2000, non-Federal R&D support grew in real terms by 8.6 percent per year compared with 4.0 percent for the economy overall.

R&D funding from other non-Federal sectors, namely, academic and other nonprofit institutions and state and local governments, has been more consistent over time. It grew in real terms at average annual rates of 6.4 percent between 1980 and 1985, 8.5 percent between 1985 and 1990, 3.8 percent between 1990 and 1995, and 5.5 percent between 1995 and 2000. The level of $14.0 billion in funding in 2000 was 4.9 percent higher in real terms than its 1999 level of $13.0 billion. Most of these funds had been used for research performed within the academic sector.


[1]  At the time this report was written, estimated data for 2000 were the latest figures available on R&D expenditures.

[2]   In some of the statistics provided in this chapter, FFRDCs are included as part of the sector that administers them. In particular, statistics on the industrial sector often include industry-administered FFRDCs as part of that sector because some of the statistics from the NSF Industry R&D Survey cannot be separated with regard to the FFRDC component. However, whenever a sector is mentioned in this chapter, the wording used will specify whether or not FFRDCs are included. FFRDCs are organizations exclusively or substantially financed by the Federal Government to meet particular requirements or to provide major facilities for research and associated training purposes. Each center is administered by an industrial firm, an individual university, a university consortia, or a nonprofit organization.

[3]  These findings are based on performer-reported R&D levels. In recent years, increasing differences have been detected in data on federally financed R&D as reported by Federal funding agencies, on the one hand, and by performers of the work (most notably, industrial firms and universities), on the other hand. This divergence in R&D totals is discussed later in this chapter; see sidebar, "Tracking R&D: Gap Between Performer- and Source-Reported Expenditures."

[4]  For a detailed discussion of this upturn, see Jankowski (1998).

[5]  These shares by national objective represent a distribution of performer-reported R&D data. They are distinct from the budget authority shares reported below that are based on the various functional categories constituting the Federal budget.

[6]  R&D budget authority data represent a distribution of Federal source-reported data. See footnote 5.

[7]  Related topics in this chapter include "Industry-University Collaboration" in the section "Research Alliances: Trends in Industry, Government, and University Collaboration" and "Higher Education Sector" under "International Comparisons of National R&D Trends".

[8]  The 1953 value is actually an overestimate because the 1953 and 1954 figures for Federal support to industry include support to industry-administered FFRDCs; the figures for subsequent years do not.

[9]  The 100 percent company funding for the drugs and medicines sector does not include the benefits this sector receives from R&D financed by NIH.

[10]  Public Law 106-170, Title V, December 1999.

[11]  For R&D tax policies abroad, see "Government Sector" under "International R&D by Performer, Source, and Character of Work" later in this chapter.

[12]  The alternative credit is a lower rate that applies to all research expenses exceeding 1 percent of revenues or sales. The rates were raised by the 1999 Tax Relief Act to 2.65–3.75 percent. Companies may select only one of these two credit modes on a permanent basis, unless the Internal Revenue Service authorizes a change.The 1999Act also extended the research credit to include R&D conducted in Puerto Rico and the U.S. possessions (U.S. OMB 2000).

[13]  The credit excludes research in the social sciences and humanities.

[14]  Data for active corporations, other than forms 1120S, 1120-TEIT, and 1120-RIC.

[15]  The study is based on a random sample of 1,053 small firms (fewer than 500 employees), of which 91 percent were privately owned; 198 small firms completed the survey. The average responding firm had a mean age of 23 years, 79 employees, and $5.7 million in annual sales.

[16]  The other two measures are revenue loss and present value of tax expenditures. For a comparison of these methods, see U.S. OMB (2001a).

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