of High-Technology Industries
Share of World Markets
Global Competitiveness of Individual Industries
Exports by High-Technology Industries
Global Business in Knowledge-Intensive Service Industries
U.S. Royalties and Fees Generated From Intellectual Property
Most countries acknowledge a symbiotic relationship between investment
in S&T and success in the marketplace: S&T supports competitiveness
in international trade, and commercial success in the global marketplace
provides the resources needed to support new S&T. Consequently,
the nation's economic health is a performance measure for the national
investment in R&D and S&E.
OECD currently identifies five industries as high technology (science-based
industries that manufacture products while performing above-average
levels of R&D): aerospace, pharmaceuticals, computers and office
machinery, communication equipment, and scientific (medical, precision,
and optical) instruments.
These five industries, identified as the most R&D intensive
by OECD, are also the most R&D intensive for the United States
(table 6-1 ).
This section reviews the U.S. position in the global marketplace
from several vantage points: its position in the high-technology
product market, the competiveness of individual industries, and
trends in U.S. exports and imports of technological know-how.
Importance of High-Technology Industries
High-technology industries are important to nations for several
reasons. High-technology firms innovate, and firms that innovate
tend to gain market share, create new product markets, and use resources
more productively (NRC, Hamburg Institute for Economic Research,
and Kiel Institute for World Economics 1996; and Tassey 2000). High-technology
firms develop high value-added products and are successful in foreign
markets, which results in greater compensation for their employees.
Industrial R&D performed by high-technology industries benefits
other commercial sectors by generating new products and processes
that increase productivity, expand business, and create high-wage
According to the Global Insight World Industry Service database,
which provides production data for 70 countries that account for
more than 97 percent of global economic activity, the global market
for high-technology goods is growing at a faster rate than that
for other manufactured goods, and high-technology industries are
driving economic growth around the world. During the 22-year period
examined (19802001), high-technology production grew at an inflation-adjusted
average annual rate of nearly 6.5 percent compared with 2.4 percent
for other manufactured goods. Global economic activity was especially
strong at the end of the period (19962001), when high-technology
industry output grew at 8.9 percent per year, more than double the
rate of growth for all other manufacturing industries (figure
table 6-1 ).
Output by the five high-technology industries represented 7.7 percent
of global production of all manufactured goods in 1980; by 2001,
it doubled to 15.8 percent.
During the 1980s, the United States and other high-wage countries
committed to increasing the resources used in the manufacture of
higher value-added, technology-intensive goods, often referred to
as high-technology manufactures. (See sidebar, "U.S.
High-Technology Industries Add More Value During Production Than
Other U.S. Manufacturing Industries.") During this period, the
United States led the major industrialized countries in concentration
on high-technology manufactures. In 1980, high-technology manufactures
accounted for about 10 percent of total U.S. production. By 1984,
it had increased to 13 percent and in 1989 was nearly 14 percent.
By contrast, high-technology manufactures represented about 12 percent
of total Japanese production in 1989, up from 7.3 percent in 1980.
European nations also saw high-technology manufactures account for
a growing share of their total production, although to a lesser
degree. The one exception was the United Kingdom, where high-technology
manufactures rose from 9 percent of total manufacturing output in
1980 to 12.5 percent in 1989.
The major industrialized countries continued to emphasize high-technology
manufactures throughout the 1990s (figure
table 6-1 ).
In 1999, high-technology manufactures were estimated to be 20.9
percent of manufacturing output in the United States, 17.0 percent
in the United Kingdom, 16.2 percent in France, 15.8 percent in Japan,
and 9.3 percent in Germany. The latest data through 2001 show output
in high-technology industries continued to grow faster than output
in other manufacturing industries in the United States, Germany,
and France, while slowing somewhat in Japan and the United Kingdom.
Taiwan and South Korea typify how important R&D-intensive industries
are to newly industrialized economies. In 1980, high-technology
manufactures accounted for 8.2 percent of Taiwan's total manufacturing
output; this proportion jumped to 12.4 percent in 1989 and reached
29.2 percent in 2001. The transformation of South Korea's manufacturing
base is even more striking. High-technology manufacturing in South
Korea accounted for 6.1 percent of total output in 1980, 10.0 percent
in 1989, and 31.0 percent in 2001.
Share of World Markets
From 1980 through 2001, the United States has consistently been
the world's leading producer of high-technology products. U.S. high-technology
industries' shares of world output fluctuated between 29 and 33
percent, rising slightly in the late 1990s before falling in 2000
and 2001. In 2001, U.S. high-technology industries accounted for
about 32 percent of world output.
The EU lost high-technology market share gradually during the 1980s
and 1990s. High-technology industries in the EU's 15 nations accounted
for 22.8 percent of world output in 2001, which was a small increase
from 2000 but generally reflects a persistent decline in the European
share since the early 1980s. Among the four large EU countries,
the United Kingdom, Germany, and Italy each recorded smaller shares,
although Germany reversed its decline somewhat from 1999 to 2001.
Only France gained market share over the 22-year period examined,
and in 2001, it led EU countries with a 5.5 percent share. Germany
accounted for 5.0 percent and the United Kingdom for 4.1 percent.
Italy's shares were the lowest among the four large European economies,
ranging from a high of about 3.5 percent during the mid-1980s to
a low of about 1.8 percent in 2000 and 2001.
Asia's market share grew over the past 2 decades, led first by
Japan in the 1980s and then by South Korea and China in the 1990s.
In 1989, Japan accounted for 21.3 percent of the world's production
of high-technology products, moving up 4 percentage points from
its 1980 share. Japan continued to gain market share through 1991.
Since then, however, its market position has deteriorated, with
the steepest declines evident after 1997. In 2001, Japan's share
fell to 12.9 percent, its lowest level in the 19802001 period examined
(figure 6-5 ).
As Japan's dominance waned, developing Asian nations made dramatic
gains. South Korea's market share more than doubled during the 1980s,
moving from 0.9 percent in 1980 to 2.1 percent in 1989, and then
increased each year throughout the 1990s. By 2000, it had jumped
to 6.5 percent, and by 2001 it measured 7.1 percent, its highest
level in the 22 years examined. The growth in China's high-technology
output surpassed that of South Korea. In 1980, China's high-technology
industry produced just 0.9 percent of the world's output. That figure
rose to 2.2 percent in 1989, 5.5 percent in 1999, and 8.7 percent
Global Competitiveness of Individual Industries
In each of the five industries that make up the high-technology
group, the United States maintained strong, if not leading, market
positions between 1980 and 2001. The United States is a large and
mostly open market, characteristics that benefit U.S. high-technology
producers in two important ways. First, supplying a market with
many consumers results in scale effects for U.S. producers because
there are potentially large rewards for new ideas and innovations
(Romer 1996). Second, the openness
of the U.S. market to competing, foreign-made technologies pressures
U.S. producers to be more innovative to maintain domestic market
Two U.S. high-technology industries, computers and office machinery
and communication equipment, reversed downward trends resulting
from competitive pressures from a growing cadre of high-technology-producing
nations during the 1980s. These industries gained market share in
the mid- to late 1990s in part due to increased capital investment
by U.S. businesses. (See sidebar, "U.S. Industry
Continues to Invest in IT.")
Since 1997, the United States has been the leading supplier of
office and computer machinery in the global market, overtaking longtime
leader Japan. The EU, led by Germany, was the dominant producer
for most of the 1980s before relinquishing the lead to Japan in
1988. Among developing countries, China and South Korea showed rapid
and consistent growth in global market share, especially in the
From 1980 through 1997, Japan was the world's leading supplier
of communication equipment, exceeding output in the United States
and the EU. In 1998, U.S. manufacturers once again became the leading
producer of communication equipment in the world and have since
retained that position. In 2001, the latest year for which data
are available, the United States accounted for approximately 24
percent of world production of communication equipment, down from
29 percent in 2000 (figure
table 6-1 ).
Aerospace, the U.S. high-technology industry with the largest world
market share, was the only industry to lose market share during
the 1990s. During the early 1980s, the U.S. aerospace industry consistently
gained market share, peaking at 57 percent in 1984. Since then,
the U.S. share of this market has generally declined, falling to
51 percent in 1989 and to about 44 percent in 1995. The industry
recovered somewhat during the following 3 years, then leveled off
at about a 50 percent share in 2001. European aerospace industries
made some gains during this time, particularly in France. After
fluctuating between 7 and 10 percent during the 1980s, the French
aerospace industry slowly gained market share for much of the 1990s.
In 2000, France supplied 12.8 percent of world aircraft shipments;
in 2001, that figure reached 13.5 percent. The EU as a whole accounted
for 30.2 percent of world aircraft shipments in 2001. China's aerospace
industry also grew relatively sharply. In 1980, China's aerospace
industry output accounted for less than 1 percent of world output;
by 1989, its market share rose to 1.5 percent. A succession of year-to-year
gains from 1992 through 1997 then lifted its market share to 5.8
percent, and in 2000 and 2001 it stood at 6.5 percent. Brazil exhibited
a very different trend. Brazil accounted for 14.9 percent of world
aerospace production in 1980, 10.2 percent in 1989, and 2.8 percent
The EU was the leading producer of drugs and medicines in the world
market for the entire 22-year period examined and accounted for
3034 percent of global shipments. France is the leading producer
among the four largest EU member nations. The U.S. market share
grew irregularly, from 20 percent in 1980 to 24 percent in 1990,
and to 25 percent in 2001. Different national laws governing the
distribution of foreign pharmaceuticals make this industry unique
compared with other high-technology industries. For this industry,
domestic population dynamics may play a more important role than
global market forces and affect the demand for a country's pharmaceutical
The 2001 addition of the scientific instruments industry (medical,
precision, and optical instruments) to the group of high-technology
industries reflects the industry's high level of R&D in advanced
nations (table 6-1 ).
From 1980 through 2001, the United States was the leading producer
of scientific instruments. In 2001, the United States accounted
for 49.3 percent of global industry shipments, up from 46.0 percent
in 1990 and 45.1 percent in 1980. The EU, led by Germany and France,
ranked second, accounting for 2831 percent of global shipments.
Exports by High-Technology Industries
Although U.S. producers benefit from having the world's largest
home market as measured by gross domestic product (GDP), mounting
trade deficits highlight the need to serve foreign markets as well.
Traditionally, U.S. high-technology industries have been more successful
exporting their products than other U.S. industries, and therefore
can play a key role in returning the United States to a more balanced
trade position (figure 6-8
Despite its domestic focus, the United States was an important
supplier of manufactured products to foreign markets throughout
the 19802001 period. Throughout the 1990s and continuing through
2001, U.S. industry supplied 1314 percent of the world's general
manufacturing exports. It ranked second only to the EU in its share
of world exports. If intra-EU shipments were excluded, the United
States would likely rank above the EU.
Exports by U.S. high-technology industries grew rapidly during
the mid-1990s and contributed to the nation's strong export performance
(figure 6-9 ).
During the 1990s, U.S. high-technology industries accounted for
between 19 and 23 percent of world high-technology exports, which
at times were nearly twice the level achieved by all U.S. manufacturing
industries. In 2001, the latest year for which data are available,
exports by U.S. high-technology industries accounted for about 17
percent of world high-technology exports; Japan accounted for about
10 percent, and Germany nearly 8 percent.
The gradual drop in the U.S. share during 19902001 was in part
due to competition from emerging high-technology industries in newly
industrialized economies, especially in Asia. High-technology industries
in South Korea and Taiwan each accounted for about 2.5 percent of
world high-technology exports in 1990, and data for 2001 show that
each country's share nearly doubled. Singapore's share, which was
3.5 percent in 1990 and 5.7 percent in 2001, was also significant.
Over the past 2 decades, U.S. high-technology industries were leading
exporters in each of the five industries that comprise the high-technology
group. The United States was the export leader in all five industries
in 2001, although its shares in several categories declined.
U.S. aerospace technology, computers and office machinery, and
communication equipment industries all recorded successively smaller
shares of world exports in 2001 than in earlier years. U.S. exports
of aerospace technologies accounted for 54 percent of world aerospace
exports in 1980, 46 percent in 1990, and 38 percent in 2001. U.S.
exports of computers and office machinery represented 31 percent
of world exports in 1980, 22 percent in 1990, and 16 percent in
2001. The U.S. manufacturers of communication equipment's share
has fluctuated in a much narrower range, 1317 percent, reaching
highs in the early 1980s and the mid-1990s before falling to lows
in 2000 and 2001. U.S. exports of scientific instruments declined
throughout most of the 1980s, remained stable through the mid-1990s,
and have slowly climbed since then. In 2001, U.S. exports of scientific
instruments accounted for approximately 22 percent of world exports
table 6-1 ).
The only U.S. industry with a higher share of world exports in 2001
than in 1980 was the pharmaceutical industry, which rose from 12
to 15 percent.
Global Business in Knowledge-Intensive Service
For several decades, revenues generated by U.S. service-sector
industries grew faster than those generated by the nation's manufacturing
industries. Data collected by the U.S. Department of Commerce show
that the service sector's share of U.S. GDP grew from 49 percent
in 1959 to 64 percent in 1997 (NSB 2000, appendix table
9-4). This growth has been fueled largely by knowledge-intensive
industries-those that incorporate science, engineering, and
technology in either their services or the delivery of their services.
Five of these knowledge-intensive industries are the communication,
financial, business (including computer software development), educational,
and health services. In the United States, these industries grew
faster than the high-technology manufacturing sector discussed earlier.
This section presents data tracking the overall revenues earned
by these industries in 70 countries
table 6-2 ).
Combined global sales in these service-sector industries exceeded
$12.3 trillion in 2001, up from $5.4 trillion in 1980 and $8.0 trillion
in 1990. The United States was the leading provider of high-technology
services, responsible for about one-third of total world service
revenues during the 22-year period examined.
Business services, which include computer and data processing and
research and engineering services, was the largest of the five service
industries and accounted for 34 percent of global revenues in 2001.
It was most prominent in the EU, which claimed 37 percent of business
services world revenue in 2001. The United States ranked second
at nearly 34 percent, followed by Japan at 15 percent. Data on individual
business services by country are not available.
Financial services was the second largest service sector and accounted
for nearly 27 percent of global revenues in 2001. Forty percent
of industry revenues in 2001 went to the U.S. financial services
industry, the world's largest. The EU was second with approximately
26 percent, followed by Japan at nearly 10 percent.
Communication services, which include telecommunication and broadcast
services, was the fourth-largest service industry examined, accounting
for almost 15 percent of world service industry revenues in 2001.
In what many consider the most technology-driven of the service
industries, the United States held the dominant position. In 2001,
U.S. firms generated revenues equal to 38 percent of world revenues.
The EU accounted for 24 percent, and Japan accounted for nearly
Because many nations' governments serve as the primary provider
of the remaining two knowledge-intensive service industries, health
services and educational services, and because the size of each
country's population affects the delivery of these services, global
comparisons based on market-generated revenues are less meaningful
than they are for other service industries. The United States, with
arguably the least government involvement, has the largest health
services industry in the world. The EU is second, followed by Japan.
If most of these services are delivered primarily to domestic customers,
then, on a per capita basis, Japanese residents clearly consumed
the most health services of any advanced nation. Educational services,
the smallest of the five knowledge-intensive service industries
in terms of revenue generated, includes governmental and private
education institutions of all types that offer primary, secondary,
and university education, as well as technical, vocational, and
commercial schools. By comparison, fees (tuition) and income from
other education service-related operations accounted for about one-fourth
of the revenues generated by the business services industry worldwide.
Europe generated the most revenues in this service industry, with
Japan second and the United States third. Again, on a per capita
basis, Japanese residents consumed more educational services than
residents in any other advanced nation.
U.S. Royalties and Fees Generated From Intellectual
The United States has traditionally maintained a large trade surplus
in intellectual property. Firms trade intellectual property when
they license or franchise proprietary technologies, trademarks,
and entertainment products to entities in other countries. These
transactions generate revenues in the form of royalties and licensing
U.S. Royalties and Fees From All Transactions
In 2001, U.S. receipts from trade in intellectual property declined
for the first time since 1987. After an increase throughout the
late 1980s and 1990s, total receipts peaked in 2000 at nearly $40
billion, then dropped somewhat in 2001. U.S. receipts for transactions
involving intellectual property generally were four to five times
larger than U.S. payments to foreign firms. This gap narrowed in
the late 1990s as U.S. payments increased faster than U.S. receipts.
This trend continued for 3 years and, by 2000, the ratio of receipts
to payments dropped to about 2.5:1.
In 2001, U.S. trade in intellectual property produced a surplus
of $22.3 billion, down 5 percent from the $23.5 billion surplus
recorded a year earlier and extending a downward trend that began
in 1999 (figure 6-12
table 6-3 ).
About 75 percent of transactions involved exchanges of intellectual
property between U.S. firms and their foreign affiliates.
Exchanges of intellectual property among affiliates grew at about
the same pace as those among unaffiliated firms. These trends suggest
both a growing internationalization of U.S. business and a growing
reliance on intellectual property developed overseas.
U.S. Royalties and Fees From Trade in Technical Knowledge
Data on royalties and fees generated by trade in intellectual property
can be further disaggregated to reveal U.S. trade in technical know-how.
By tracking transactions between unaffiliated firms in which prices
are set through market-based negotiation, these data may better
reflect the value of technical know-how at a given time than data
on exchanges among affiliated firms. When receipts (sales of technical
know-how) consistently exceed payments (purchases), these data may
indicate a comparative advantage in the creation of industrial technology.
Tracking the record of receipts and payments also provides an indicator
of trends in the production and diffusion of technical knowledge.
The United States is a net exporter of technology sold as intellectual
property. The gap between imports and exports narrowed during the
late 1990s, but the most recent data show a surge in receipts in
2000 that outpaced the growth in payments. During the early 1990s,
royalties and fees received from foreign firms were an average of
three times greater than the amount U.S. firms paid foreigners for
access to their technology. U.S. receipts grew to $3.9 billion in
1999, and in 2001 totaled $4.9 billion, an increase of approximately
24 percent (figure 6-13
table 6-4 ).
The slower growth in the most recent year may be due in part to
past transfers of intellectual property to foreign affiliates of
U.S. firms who in turn take the place of the U.S. parent company
when dealing directly with foreign customers. Such transfers are
advantageous for U.S. firms when the affiliates are located in countries
with lower tax rates or when the transfers facilitate local product
adaptation (Borga and Mann 2002).
In transactions between unaffiliated firms, U.S. receipts for technology
sold as intellectual property exceeded payments by more than $3
billion in 2000 and 2001.
The U.S. trade surplus in intellectual property is driven largely
by trade with Asia. In 1995, U.S. receipts (exports) from technology
licensing transactions were nearly seven times the amount of U.S.
payments (imports) to Asia. That ratio closed to slightly more than
4:1 by 1997, but has since widened. The most recent data show U.S.
receipts from technology licensing transactions at more than six
times the amount of U.S. payments to Asia. Japan and South Korea
were the biggest customers for U.S. technology sold as intellectual
property; together, these countries accounted for 54 percent of
total receipts in 2001.
Japan was the single largest consumer, although its purchases declined
significantly during the 1990s. At its peak in 1993, Japan's share
of U.S. receipts was approximately 51 percent. Japan's purchases
began to increase again in 2000 and 2001, raising its share to 35
and 39 percent, respectively. Another Asian country, South Korea,
was the second largest consumer, accounting for nearly 15 percent
of U.S. receipts in 2001. South Korea has been a major consumer
of U.S. technological know-how since 1988, when it accounted for
5.5 percent of U.S. receipts. South Korea's share rose to nearly
11 percent in 1990 and reached its highest level, 19 percent, in
Unlike its trade with Asia, U.S. trade in intellectual property
with Europe fluctuated between surplus and deficit until 1994, when
a sharp decline in U.S. purchases of European technical know-how
led to a considerably larger surplus for the United States than
in previous years. Another large surplus in 1995 resulted from an
increase in receipts from the larger European countries. Receipts
from EU countries have risen steadily since 1997, reaching $1.4
billion in 2001, or about 28 percent of all U.S. receipts for technology
sold as intellectual property. Some of this increase can be attributed
to increased licensing activity by firms in Germany, the third-largest
consumer of U.S. technological know-how. In 2001, German firms spent
$368 million, approximately double their expenditures in 1997. The
latest data also show that U.S. receipts from exchanges with France
and Switzerland rose sharply during the late 1990s and again in
2000 and 2001, leading to considerably larger U.S. surpluses from
trade with Europe.
Foreign sources for U.S. firms' purchases of technical know-how
varied over the years. The EU has been the biggest supplier for
U.S. firms, accounting for 4055 percent of foreign-supplied purchases
of technological know-how sold as intellectual property. Germany,
the United Kingdom, and Switzerland are the principal European suppliers.
Asia has also been an important supplier of technological know-how,
although its share of U.S. purchases has dropped considerably since
1999. In 2001, Asian countries accounted for 26 percent of U.S.
purchases, down from 39 percent in 1999. Japan is the source for
nearly all of the U.S. purchases from Asia, with small amounts coming
from South Korea and Taiwan. Since 1992, Japan has been the single
largest foreign supplier of technical know-how to U.S. firms: about
one-fourth of 2001 U.S. payments were made to Japanese firms.