Absolute Levels of Total R&D Expenditures
Trends in Total R&D/GDP Ratios
Nondefense R&D Expenditures and R&D/GDP Ratios
International R&D by Performer, Source, and Character of Work
Absolute levels of R&D expenditures are indicators of the breadth and
scope of a nations S&T activities and are a harbinger of future
growth and productivity. Indeed, investments in the R&D enterprise
strengthen the technological base on which economic prosperity increasingly
depends worldwide. The relative strength of a particular countrys current
and future economy and the specific scientific and technological areas in which
a country excels, are further revealed through comparison with other major
R&D-performing countries. This section provides comparisons of
international R&D spending patterns. It examines absolute and
relative expenditure trends, contrasts performer and source structural
patterns, reviews the foci of R&D activities within sectors, and looks at
government research-related priorities. Although R&D performance patterns
by sector are broadly similar across countries, national sources of support
differ considerably. In nearly all OECD countries, government has provided a
declining share of all R&D funding during the past decade, whereas the
industrial share of the funding total has increased considerably. The relative
emphasis of industrial R&D efforts, however, differ across countries, as do
governmental R&D priorities and academic S&E field research emphases.
Reflecting an overall pattern of R&D internationalization, foreign sources
of R&D funding have been increasing in many countries.
Absolute Levels of Total R&D
distribution of R&D performance is concentrated in relatively few
industrialized nations. Of the $518 billion in estimated 1998 R&D
expenditures for the 30 OECD countries, fully 85 percent is expended in only 7
countries (Organisation for Economic Co-operation and
Development 2000a). These estimates are based on reported
R&D investments (for defense and civilian projects) converted to U.S.
dollars with purchasing power parity (PPP) exchange rates. See sidebar, "Purchasing Power Parities: Preferred
Exchange Rates for Converting International R&D Data."
The United States accounts for roughly 44 percent of all OECD member
countries combined R&D investments; U.S. R&D investments continue
to outdistance by 150 percent R&D investments made in Japan, the second
largest R&D-performing country. The United States not only spent more money
on R&D activities in 1999 than any other country but also spent as much by
itself as the rest of the G-7 countries (Canada, France, Germany, Italy, Japan,
and the United Kingdom) combined. (See
figure 4-26 and appendix table 4-40
for inflation-adjusted PPP R&D totals for OECD and G-7 countries.) In terms
of other large R&D performers, only South Korea accounts for a substantial
share of the OECD total (a remarkable 3.8 percent in 1998, which is higher than
the amounts expended in either Canada or Italy). In only four other countries
(the Netherlands, Australia, Sweden, and Spain) do R&D expenditures exceed
1 percent of the OECD R&D total (OECD 2000a).
In terms of
relative shares, U.S. R&D spending in 1985 reached historical highs of 53
percent of the G-7 total and 48 percent of all OECD R&D. As
a proportion of the G-7 total, U.S. R&D expenditures declined steadily to a
low of 49 percent in 1992. Since then, U.S. R&D has climbed to its 1999
level, a 53 percent G-7 share. (See figure 4-26 for actual expenditure totals.)
Conversely, R&D spending in the United States was equivalent to 112 percent
of spending in non-U.S. G-7 countries and to approximately 80 percent of all
other OECD countries R&D expenditures in 1999.
of the U.S. improvement since 1993 relative to the other G-7 countries resulted
from a worldwide slowing in R&D performance that was more pronounced in
other countries. Although U.S. R&D spending stagnated or declined for
several years in the early to mid-1990s, the reduction in real R&D spending
in most of the other large R&D-performing countries was more striking. In
Japan, Germany, and Italy, inflation-adjusted R&D spending fell for three
consecutive years (1992, 1993, and 1994) at a rate of decline that exceeded
similarly falling R&D spending in the United States. In fact, large and small
industrialized countries worldwide experienced substantially reduced R&D
spending in the early 1990s (OECD 2000a). For most of these countries, economic
recessions and general budgetary constraints slowed both industrial and
government sources of R&D support. More recently, R&D spending has
rebounded in several G-7 countries, as has R&D spending in the United
States. Yet since annual R&D growth generally has been stronger in the
United States than elsewhere and has even slowed to a standstill in Japan
according to the most recently available statistics (see figure 4-27 ), the
difference between the United States and the other G-7 countries combined
R&D spending has continued to widen.
Concurrent with the latest
years increase in the U.S. share of the G-7 countries R&D
performance, a similar increase has been seen in the U.S. share of all OECD
countries R&D spendiing. In 1985, the United States accounted for 48
percent of the R&D reported by OECD countries; by 1995, the U.S. share had
dropped to 42 percent of the OECD R&D total. Part of this share reduction
(perhaps up to 2 percentage points) resulted from the addition of several
countries to OECD membership (thereby increasing the OECD R&D totals);
worldwide growth in R&D activities, however, was a greater contributing
factor to the loss of R&D share experienced by the United States. Since
then, the U.S. share has climbed back to 44 percent of the OECD total in 1999,
more a result of robust R&D growth in the United States than a result of
the significant changes under way in the other OECD countries.
Trends in Total R&D/GDP Ratios
One of the first (Steelman 1947) and now most widely used
indicators of a countrys commitment to growth in scientific knowledge and
technology development is the ratio of R&D spending to GDP. (See figure
4-28 .) For most of the G-8 countries (that is, the G-7 countries plus the
Russian Federation), the latest R&D/GDP ratio is no higher now than it was
at the start of the 1990s, which ushered in a period of slow growth or decline
in their overall R&D efforts. The ways in which different countries have
reached their current ratios vary considerably, however. The United States
and Japan reached 2.7 and 2.8 percent, respectively, in 199091. As a
result of reduced or level spending by industry and government in both
countries, the R&D/GDP ratios declined several tenths of a percentage
point, to 2.4 and 2.6, respectively, in 1994 before rising again to 2.6 and 3.0
percent. Growth in industrial R&D accounted for much of the recovery in
each of these countries. Electrical equipment, telecommunications, and computer
services companies have reported some of the strongest R&D growth since
1995 in the United States. Growth in pharmaceutical R&D also has been
substantial. In Japan, spending increases were highest in the electronics,
machinery, and automotive sectors and appear to be associated mainly with a
wave of new digital technologies (Industrial Research Institute 1999). However,
the steady increase in Japans R&D/GDP ratio since 1994 is also
partially a result of anemic economic conditions overall: GDP fell in both 1998
and 1999, so that even level R&D spending resulted in a slight increase in
its R&D ratio (OECD 2000a).
Among the remaining six G-8 countries, two (Germany and Russia) display recent increases in their economies R&D
intensity, and four (the United Kingdom, France, Italy, and Canada) report an
R&D/GDP ratio that has remained stagnant or continues to decline. In
Germany, the R&D/GDP ratio fell from 2.9 percent at the end of the 1980s,
before reunification, to 2.3 percent in 1993 before rising to its current level
of 2.4 percent. By comparison, this macro-R&D indicator continues to slip
slightly in France and the United Kingdom to their current levels of 2.2 and
1.9 percent, respectively, and has fluctuated narrowly at 1.0 and 1.6 percent
in Italy and Canada, respectively, for the past five years or longer. The end
of the cold war and collapse of the Soviet Union had a drastic effect on
Russias R&D enterprise. R&D spending in Russia was estimated at
2.0 percent of GDP in 1990; that figure plummeted to 1.4 percent in 1991 and
then tumbled further to 0.7 percent in 1992. Moreover, the severity of this
R&D decline is masked somewhat: although the R&D share was falling, it
also was a declining share of a declining GDP. By 1999, the R&D/GDP ratio
in Russia had inched back to about 1.0 percent, although the country continues
to experience severe reductions in its R&D spending.
Overall, the United States ranked fifth among OECD countries in terms of reported
R&D/GDP ratios for the 199699 period. (See text table 4-13 .) Sweden
leads all countries with 3.7 percent of its GDP devoted to R&D, followed by
Japan (3.0 percent), Finland (2.9 percent), and Switzerland (2.7 percent). In
general, nations in Southern and Eastern Europe tend to have R&D/GDP ratios
below 1.5 percent, whereas Nordic nations and those in Western Europe report
R&D spending shares greater than 1.5 percent. In a broad sense, the reason
for such patterns has much to do with overall funding patterns and
macroeconomic structures. In practically all OECD countries, the business
sector finances most of the R&D. However, OECD countries with relatively
low R&D/GDP ratios tend to be relatively low-income countries, and
government funding tends to provide a larger proportion of the R&D support
than it provides in the high R&D/GDP ratio countries. Furthermore, the
private sector in such low-income countries often consists of low-technology
industries, resulting in low overall R&D spending and, therefore, low
R&D/GDP ratios. Indeed, a strong link exists between countries with high
incomes that emphasize the production of high-technology goods and services and
those that invest heavily in R&D activities (OECD 2000e).
Outside the European region, R&D spending has intensified considerably since the early
1990s. Several Asian countries, most notably South Korea and China, have been
particularly aggressive in expanding their support for R&D and
S&T-based development. In Latin America and the Pacific region, other
non-OECD countries also have attempted to increase R&D investments
substantially during the past several years. Even with recent gains, however,
most non-European (non-OECD) countries invest a smaller share of their economic
output on R&D than do OECD members (with the exception of Israel, whose
reported 2.5 percent nondefense R&D/GDP ratio ranks seventh in the world).
With the apparent exception of Costa Rica, all Latin American countries for
which such data are available report R&D/GDP ratios below 1 percent. (See
text table 4-13 .) This distribution is consistent with broader indicators of
economic growth and wealth. However, many of these countries also report
additional S&T-related expenditures on human resources training and S&T
infrastructure development that are not captured in R&D and R&D/GDP
data (Red Iberomericana de Indicadores de Ciencia y Tecnologia 2001).
Nondefense R&D Expenditures and R&D/GDP Ratios
As a result of concerns related to national scientific progress, standard-of-living
improvements, economic competitiveness, and commercialization of research
results, attention has shifted from nations total R&D activities to
nondefense R&D expenditures as indicators of scientific and technological
strength. Indeed, conclusions about a countrys relative standing may
differ dramatically, depending on whether total R&D expenditures are
considered or defense-related expenditures are excluded from the totals; for
some countries, the relative emphasis has shifted over time. Among G-8 countries, the inclusion of defense R&D has little impact on R&D totals for Japan, Germany, Italy, and Canada, where defense R&D represents 5 percent or less of the national total. In other countries, defense has accounted for a more significant, although since the end of the cold war declining, proportion of the national R&D effort. Between 1988 and 1998, the defense share of the R&D total:
- has fallen from 31 to 15 percent in the United States,
- has fallen from 21 to 7 percent in France,
- has fallen from 17 to 12 percent in the United Kingdom, and
- accounts for approximately 25 percent of the 1998 Russian R&D total.
Consequently, if current trends persist, the distinction between defense and nondefense R&D expenditures in international comparisons may become less important. In absolute dollar terms, the U.S. nondefense R&D spending is still considerably larger than that of its foreign counterparts. In 1998 (the latest year for which comparable international R&D data are available from most OECD countries), U.S. nondefense R&D was more than twice that of Japan and was equivalent to 94 percent of the non-U.S. G-7 countries combined nondefense R&D total. (See appendix table 4-41.)
In terms of R&D/GDP ratios, the relative position of the United States is somewhat less favorable for this nondefense metric compared with those ratios for all R&D combined. Japans nondefense R&D/GDP ratio (3.0 percent) exceeded that of the United States (2.2 percent) in 1998, as it has for years. (See figure 4-28 and appendix table 4-41.) The nondefense R&D ratio of Germany (2.3 percent in 1999) slightly exceeded that of the United States (again, in contrast to total R&D). The 1998 nondefense ratio for France (2.0 percent) was slightly below the U.S. ratio; ratios for the United Kingdom and Canada (each at 1.6 percent) and for Italy (1.0 percent) were considerably lower. The nondefense R&D/GDP ratio for Russia was nearly one-third (0.7 percent) the U.S. ratio.
International R&D by Performer, Source, and Character of Work
Broad Sector Patterns
Although marked differences are observed in the financing and performance of R&D among both OECD and non-OECD countries, similarities also are observed in R&D patterns for the G-8 countries. Government and industry account for roughly 80 percent or more of the R&D funding in each of these eight countries, although the respective contributions vary substantially across countries. The industrial sector provided more than 70 percent of R&D funds in Japan, 67 percent in the United States, 64 percent in Germany, 54 percent in France; and between 44 and 49 percent in the United Kingdom, Italy, and Canada. (See figure 4-29 .) In Russia, industry provided approximately 35 percent of the nations R&D funding. Government provided the largest share (54 percent) of Russias R&D total, as it did in Italy (at 51 percent of the national R&D effort). In the remaining six countries, government was the second largest source of R&D funding, ranging between 19 percent (in Japan) and 37 percent (in France) of the total. In each of these eight countries, government provided the largest share of the funds used for academic R&D performance. (See appendix table 4-42.)
The industrial sector dominates R&D performance in each of the G-8 countries. (See figure 4-29 .) Industry performance shares for the 199899 period ranged from a little more than 70 percent in the United States and Japan to less than 54 percent in Italy. Industrys share was between 62 and 69 percent in France, Canada, the United Kingdom, Germany, and Russia. Most of the industrial R&D performance in these countries was funded by industry. Governments share of funding for industry R&D performance ranged from as little as 2 percent in Japan to 43 percent in Russia. (See appendix table 4-42.) In the other G-8 countries, the government funding share of industrial R&D ranged narrowly between 5 and 13 percent.
In most of these countries, the academic sector was the next largest R&D performer (at about 12 to 25 percent of the performance total in each country). Academia often is the primary location of research (as opposed to R&D) activities, however. Government was the second largest R&D performing sector in France (which included spending in some sizable government laboratories), as it was in Russia (accounting for 26 percent of that nations R&D effort).
Character of R&D Effort
Not all of the G-8 countries categorize their R&D expenditures into basic research, applied research, or development categories, and for several countries that do use this taxonomy, the data are somewhat dated (OECD 2000b). In fact, only 6 of the 30 OECD members (and Russia) have reported their countries character of work shares for 1998 or later. R&D classification by character of work probably involves a greater element of subjective assessment than other R&D indicators. See sidebar, "Choice of the Right R&D Taxonomy Is a Historical Concern." Rather than resulting from surveys, the data often are estimated in large part by national authorities. Nonetheless, where these data exist, they indicate the relative emphasis that a country places on supporting fundamental scientific activitiesthe seed corn of economic growth and technological advancement.
The United States expends approximately 18 percent of its R&D on activities that performers classify as basic research. (See figure 4-30 .) About one-half of this research is funded by the Federal Government and performed in the academic sector. The largest share of this basic research effort is conducted in support of life sciences. Basic research accounts for comparatively smaller amounts of the national R&D performance efforts in the Russian Federation (16 percent); South Korea (14 percent), which is currently the sixth largest R&D-performing member of OECD; and Japan (12 percent). Compared with patterns in the United States, however, a considerably greater share is funded for engineering research activities in each of these three countries. Conversely, basic research accounts for more than 20 percent of total R&D performance reported in Italy, France, and Australia.
In contrast to spending patterns reported for most countries, spending on applied research activities accounts for the largest proportion (43 percent) of Italys R&D total. In each of the other countries shown here, development accounted for the largest share of national totals (approximately 60 percent but as little as 40 percent of total in Australia), with most of the experimental development work under way in their respective industrial sectors.
Higher Education Sector
Source of Funds. In many OECD countries, the academic sector is a distant second to industry in terms of the national R&D performance effort. Among G-8 countries, universities account for as little as 5 percent of Russias R&D total to upward of a 25 percent share in Italy. For most of these countries, the government is now, and historically has been, the largest source of academic research funding. However, in each of these countries for which historical data exist (the exception being Russia), the government financing share has declined during the past 20 years, and industry as a source of university R&D funding has increased. Specifically, the government share, including both direct government support for academic R&D and the R&D component of block grants to universities, has fallen by 8 percentage points or more in six of the G-7 countries since 1981 (the exception being Italy, in which the government share has dipped from 96 to 94 percent of the academic R&D total). By comparison, and as an indication of an overall pattern of increased university-firm interactions (often intending to promote the commercialization of university research), the funding proportion from industry sources for these seven countries combined climbed from 2.5 percent of the academic R&D total in 1981, to 5.4 percent in 1990, to 6.4 percent in 1998. In Germany and Canada, almost 11 percent of university research is now funded by industry. (See text table 4-14 .)
S&E Fields. As noted in the discussion on the character of the R&D effort, the national emphases in particular S&E fields differ across countries. Where they are collected at all, most of the internationally comparable data on field-specific R&D are reported for the higher education sector. Although difficult to generalize, it would appear that most countries supporting a substantial level of academic R&D (defined at $1 billion PPPs in 1998) devote a relatively larger proportion of their R&D for engineering, social sciences, and humanities than does the United States. (See text table 4-15 .) Conversely, the U.S. academic R&D effort emphasizes the medical sciences and natural sciences relatively more than do many other OECD countries. The latter observation is consistent with the overall U.S. relative R&D emphases in health and biomedical sciences for which NIH and U.S. pharmaceutical companies are known.
Sector Focus. Industrial firms account for the largest share of the total R&D performance in each of the G-8 countries. However, the purposes to which the R&D is applied differ somewhat, depending on the overall industrial composition of the economy. Furthermore, the structure of industrial activity can itself be a major determinant of the level and change in a countrys industrial R&D spending. Variations in such spending can result from differences in absolute output, industrial structure, and R&D intensity. Countries with the same size economy could have vastly different R&D expenditure levels (and R&D/GDP ratios). Differences might depend on the share of industrial output in the economy, on whether the industries that account for the industrial output are traditional sites of R&D activity (e.g., food processing firms generally conduct less R&D than pharmaceutical firms), and on whether individual firms in the same industries devote substantial resources to R&D or emphasize other activities (i.e., firm-specific intensities). Text table 4-16 provides the distribution of industrial R&D performance in the G-8 countries and in Sweden and Finland, which have the first and third highest R&D/GDP ratios in the world, respectively.
The level of industrial R&D in the United States far exceeds the level reported for any and all other of these countries, and therefore, the data are reported as shares of countries industrial R&D totals. Most of these countries perform R&D in support of a large number of industry sectors. The sector distribution of the U.S. industrial R&D effort, however, is among the most widespread and diverse. This perhaps indicates a national inclination and ability to invest in becoming globally competitive in numerous industries rather than specializing in just a few industries or niche technologies. No U.S. industry sector accounts for more than 13 percent of the industry R&D total (the electrical equipment industry representing the highest level), and only two others (office machinery, including computers, and aerospace) account for 10 percent or more of the industry total. By comparison, most of the other countries display somewhat higher sector concentrations, including 20 percent or higher industry R&D shares for electrical equipment firms in Finland (at 44 percent of its industry total), Canada, Italy, and Sweden. Indeed, the electrical equipment sector is among the largest performers of the industrial R&D effort in 8 of the 10 countries shown (exceptions are the United Kingdom and Russia). Among other manufacturing sectors, 20 percent or higher shares are reported for motor vehicles in Germany and for pharmaceuticals in the United Kingdom, which is consistent with general economic production patterns.
As indicated earlier, one of the more significant trends in U.S. industrial R&D activity has been the growth of the R&D effort within the nonmanufacturing sector. According to the internationally harmonized data in text table 4-16 , such growth accounted for 20 percent of the U.S. 1997 industry R&D total, with computer services, R&D services, and trade each accounting for the largest individual shares (about 5 percent). A number of other countries also report substantial increases in their service sector R&D expenditures during the past 25 years. Among G-7 countries, nonmanufacturing R&D shares have increased by about 5 percentage points in France and Italy and by 13 percentage points in the United States, United Kingdom, and Canada since the early 1980s (Jankowski 2001b). In each of these three English-speaking countries, computer and related services account for a substantial share of the service R&D totals. Furthermore, R&D services appear to be an important locus of industry activity in several countries, reflecting in part the growth in outsourcing and greater reliance on contract R&D in lieu of in-house performance, as well as intramural R&D in these industries.
According to the national statistics, only in Germany and Japan do the nonmanufacturing sectors currently account for less than 10 percent of the industry R&D performance total. Among the countries listed in text table 4-16 , services R&D shares range from as little as 4 percent in Japan to 59 percent in Russia. The latter figure, however, primarily occurs because specialized industrial research institutes perform a large portion of Russias industry and federal government R&D and are classified under the "research and development" sector within the service sector. Apart from these institutes, the manufacturing-nonmanufacturing split in Russias industrial R&D would be similar to ratios in the United States (American Association for the Advancement of Science (AAAS) and Centre for Science Research and Statistics (CSRS) 2001).
Source of Funds. Most of the industrial R&D in each of these eight countries is provided by industry itself. As is the situation for OECD countries overall, government financing accounts for a small and declining share of the industry R&D performance total within G-7 countries. See "Government Sector" for further discussion. Government financing shares range from as little as 2 percent of the industry R&D in Japan to 13 percent of Italys industry R&D effort. (See appendix table 4-42.) (For recent historical reasons, Russia is the exception to this pattern among the G-8 countries, with government accounting for 43 percent of its industry total.) In the United States, the Federal Government currently provides about 11 percent of the R&D funds used by industry, and the majority of that funding is obtained through contracts from DOD.
As shown in figure 4-31 , funds from abroad accounted for as little as 0.4 percent of Japans R&D expenditure total to almost 22 percent of total R&D expenditures in the United Kingdom. Foreign funding, predominantly from industry for R&D performed by industry but also including some small amounts of foreign funding provided to other nonindustry sectors, is an important and growing funding source in several countries. Growth in this funding source primarily reflects the increasing globalization of industrial R&D activities overall. For European countries, however, the growth in foreign sources of R&D funds may also reflect the expansion of coordinated European Community (EC) efforts to foster cooperative shared-cost research through its European Framework Programmes. Although the growth pattern of foreign funding has seldom been smooth, it now accounts for more than 20 percent of industrys domestic performance totals in Canada and the United Kingdom and approximately 10 percent of industry R&D performed in Italy, France, and Russia. (See figure 4-31 .) Such funding takes on even greater importance in many of the smaller OECD countries as well as in less industrialized countries (OECD 1999b).
In the United States, approximately 13 percent of funds spent on industry R&D performance in 1998 are estimated to have come from majority-owned affiliates of foreign firms investing domestically. This amount was considerably more than the 3 percent funding share provided by foreign firms in 1980 and their 8 percent share reported as recently as 1991.
Government R&D Funding Totals. In most countries, the government sector makes its strongest impact on the R&D enterprise not by conducting R&D but, rather, by financing R&D. The government sector accounts for only 11 percent of OECD members combined R&D performance in 1998 (OECD 2000a) and for 26 percent or (usually much) less in each of the G-8 countries. (See appendix table 4-42.) Government accounted for 13 percent of the OECD performance total as recently as 1995.
The decline in governments share of the R&D performance totals, however, pales in comparison with their shrinking share of the R&D financing total. Indeed, the most significant trend among the G-7 and other OECD countries has been the relative decline in government R&D funding in the 1990s. In 1998, less than one-third of all R&D funds were derived from government sources, down considerably from the 45 percent share reported 16 years earlier. (See figure 4-32 .) Among all OECD countries, government accounts for the highest funding share in Portugal (68 percent of its 1997 R&D total) and the lowest share in Japan (19 percent in 1998). Part of the relative decline reflects the effects of budgetary constraints, economic pressures, and changing priorities in government funding (especially the relative reduction in defense R&D in several of the major R&D-performing countries, notably France, the United Kingdom, and the United States). Another part reflects the absolute growth in industrial R&D funding as a response to increasing international competitive pressures in the marketplace, irrespective of government R&D spending patterns, thereby increasing the relative share of industrys funding as compared with governments funding. Both of these considerations are reflected in funding patterns for industrial R&D performance alone. In 1982, government provided 23 percent of the funds used by industry in conducting R&D within OECD countries, whereas by 1998 governments share of the industry R&D total had fallen by more than half, to 10 percent of the total. In most OECD countries (as in the United States), government support for business R&D is skewed toward large firms.
Government R&D Priorities. A breakdown of public expenditures by major socioeconomic objectives provides insight into government priorities that as a group have changed over time and that individually differ considerably across countries. Within OECD, the defense share of governments R&D financing total has declined annually since the mid-1980s. Accounting for 44 percent of the government total in 1986, defense-related activities now garner a much smaller 31 percent share. (See text table 4-17 .) Much of this decline is driven by the U.S. experience: 53 percent of the U.S. Governments $78 billion R&D investment during 1999 was devoted to national defense, down from its 69 percent share in 1986. Nonetheless, defense still accounts for a relatively larger government R&D share in the United States than elsewhere. This share compares with the 35 percent defense share in the United Kingdom (of a $9 billion government total), 30 percent in Russia (of $4 billion), 23 percent in France (of $13 billion), and less than 10 percent each in Germany, Italy, Canada, and Japan. (See figure 4-33 and appendix table 4-43.) As in the United States, these recent figures represent substantial cutbacks in defense R&D in the United Kingdom and France, where defense accounted for 44 and 40 percent, respectively, of government R&D funding in 1990. However, defense-related R&D also seems
particularly difficult to account for in many countries national statistics. See sidebar, "Tracking R&D: Gap Between Performer- and Source-Reported Expenditures."
Concurrent with the changes in overall defense/nondefense R&D shares, notable shifts have occurred in the composition of OECD countries governmental nondefense R&D support during the past two decades. In terms of the broad socioeconomic objectives to which government programs are classified in various international reports (OECD 1999a, 2000f), government R&D shares have increased most for health and the environment and for various nondirected R&D activities (identified in text table 4-17 as "other purposes"). Growth in health-related R&D financing has been particularly strong in the United States, whereas many of the other OECD countries have reported relatively greater growth for environmental research programs. Indeed, as is indicated from a variety of R&D metrics, the emphasis on health-related research is much more pronounced in the United States than in other countries, although the importance of tracking the R&D contribution to improving human health has become widely accepted (OECD 2001). In 1999, the Federal Government devoted 21 percent of its R&D investment to health-related R&D, making such activities second only to defense. (Direct comparisons between health and defense R&D are complicated because most of the health-related R&D is research, and about 90 percent of defense R&D is development.)
The relative shift in emphasizing nondirected R&D reflects government priority setting during a period of fiscal austerity and constraint. With fewer discretionary funds available to support R&D, governments have tended to conduct activities that are traditionally in the government sphere of responsibility and for which private funding is less likely to be available. For example, basic research projects are inextricably linked to higher education. Conversely, the relative share of government R&D support provided for economic development programs has declined considerably, from 38 percent of total in 1981 to 23 percent in 1999. Economic development programs include the promotion of agriculture, fisheries and forestry, industry, infrastructure, and energy, all activities for which privately financed R&D is more likely to be provided without public support, although the focus of such private and public support would undoubtedly differ somewhat.
Different activities are emphasized in individual countries governmental R&D support statistics. Japan committed 19 percent of its total governmental R&D support ($20 billion) to energy-related activities, reflecting the countrys historical concern about its high dependence on foreign sources of energy. (See appendix table 4-43.) In Canada, 11 percent of the governments $4 billion in R&D funding was directed toward agriculture. Space R&D received considerable support in the United States and France (11 percent of the total in each country), while industrial development accounted for 8 percent or more of governmental R&D funding in Canada, Germany, Italy, and Russia. In fact, industrial development is the leading socioeconomic objective for R&D in Russia, accounting for 23 percent of all government R&D, funding for which is primarily oriented toward the development of science-intensive industries and is aimed at increasing economic efficiency and technological capabilities (AAAS and CSRS 2001). Industrial development programs accounted for 7 percent of the Japanese total but for less than 1 percent of U.S. R&D. (See figure 4-33 .) The latter figure, which includes mostly R&D funding by NIST of the U.S. Department of Commerce, is understated relative to most other countries as a result of data compilation differences. In part, the low U.S. industrial development share reflects the expectation that firms will finance industrial R&D activities with their own funds; in part, government R&D that may be indirectly useful to industry is often funded with
other purposes in mind such as defense and space (and is therefore classified under other socioeconomic objectives).
Japanese, German, and Italian government R&D appropriations in 199899 were invested relatively heavily in advancement of knowledge (50 percent or more of the $20 billion total for Japan, 55 percent of Germanys $16 billion total, and 59 percent of the $7 billion total in Italy). "Advancement of knowledge" is the combined support for advancement of research and GUF. Indeed, the GUF component of advancement of knowledge, for which there is no comparable counterpart in the United States, represents the largest part of government R&D expenditure in most OECD countries.
R&D Tax Policies. In many OECD countries, government not only provides direct financial support for R&D activities but also uses indirect mechanisms such as tax relief to promote national investment in S&T. Indeed, tax treatment of R&D in OECD countries is broadly similar, with some variations in the use of R&D tax credits (OECD 1996, 1999a). The main features of the R&D tax instruments are as follows:
- Almost all OECD countries (including the United States) allow 100 percent of industry R&D expenditures to be deducted from taxable income in the year they are incurred.
- About one-half of OECD countries (including the United States) provide some type of additional R&D tax credit or incentive with a trend toward using incremental credits. A few countries also use more targeted approaches, such as those favoring basic research.
- Several OECD countries have special provisions that favor R&D in small and medium-size enterprises. (In the United States, credit provisions do not vary by firm size, but direct Federal R&D support is provided through grants to small firms.)
A growing number of R&D tax incentives are being offered in OECD countries at the subnational (provincial and state) levels, including in the United States. See Poterba (1997) for a discussion of international elements of corporate R&D tax policies.