Chapter 4: Research and Development: Funds and Technology Linkages


The rapid growth in R&D investment in the United States from 1994 to 2000 fell victim to stock market decline and slower economic pace in the first years of the 21st century. As a result, U.S. R&D experienced its first decline in almost 50 years in 2002. The decline lasted only 1 year as R&D growth accelerated in 2003 and 2004.

Reaction to acts of terrorism and military mobilizations have reversed a declining trend in the U.S. government's share of defense-related R&D. Other countries throughout the world have maintained their focus on nondefense R&D and have attempted to take proactive steps toward intensifying and focusing their national R&D activity. These steps range from increasing general government spending to fostering high-technology industrial clusters.

The locus of R&D activities is also shifting as a reflection of broad technological changes and new scientific research opportunities. Industrial R&D is increasingly undertaken in service (versus manufacturing) industries, and much of the industrial R&D growth has occurred in biotechnology and information technology. Moreover, federal research funds have shifted markedly toward the life sciences over the past decade.

Cross-country R&D investments through MNCs continue to be strong between U.S. and European companies. At the same time, certain developing or newly industrialized economies are emerging as significant hosts of U.S.-owned R&D, including China, Israel, and Singapore. U.S. MNCs continued expanding R&D activity overseas, but foreign MNCs in the United States have increased their R&D expenditures even more.

The significance of these trends for the R&D enterprise, national competitiveness, and public policy is difficult to assess. For example, MNC trends reflect the combined effect of different investment strategies including mergers and acquisitions, the establishment of new facilities, and changes in existing laboratories, service centers, and manufacturing plants. Furthermore, no information exists below aggregate R&D expenditures for MNC data.

In part to address these challenges, NSF, in partnership with the U.S. Census Bureau, which conducts the NSF Survey of Industrial Research and Development, and BEA, which conducts the international investment surveys, completed a study aimed at developing a methodology to integrate information from the different surveys. The study demonstrated the feasibility of linking this information. If future links are undertaken, integrated data may yield new indicators such as MNCs' R&D spending by character of work and by state location. A separate statistical project between NSF and BEA, which also publishes GDP and other national economic accounts data, is directed at integrating R&D expenditure data into national accounts methodology by means of a satellite account for R&D. A satellite account framework recognizes the investment characteristics of R&D, facilitating the measurement and assessment of its role in long-term productivity and economic growth. Additional investigations on the role of partnerships, joint ventures, and transactions in R&D services are warranted in an increasingly diffused web of R&D and innovation players across the globe.

National Science Board.