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International R&D Comparisons
- Global R&D Expenditures
- OECD and G-7 R&D Expenditures
- Indicators of R&D Intensity
- International R&D by Performer and Source of Funds
- Industrial Sector
- Academic Sector
- Government R&D Priorities
Increasingly, the international competitiveness of a modern economy is defined by its ability to generate, absorb, and commercialize knowledge. Although it is no panacea, scientific and technological knowledge has proven valuable in addressing the challenges countries face in a variety of areas such as sustainable development, economic growth, health care, and agricultural production. Nations benefit from R&D performed abroad, but domestic R&D performance is an important indicator of a nation's innovative capacity and its prospects for future growth, productivity, and S&T competitiveness. This section compares international R&D spending patterns. Topics include absolute expenditure trends, measures of R&D intensity, the structure and focus of R&D performance and funding across sectors, and government research-related priorities and policies.
Most of the R&D data presented in this section are from the Organisation for Economic Co-operation and Development (OECD), the most reliable source for such international comparisons. However, an increasing number of non-OECD countries and organizations now collect and publish R&D statistics, which are cited at various points in this section. No R&D-specific currency exchange rates exist, but for comparison purposes international R&D data have been converted to U.S. dollars with purchasing power parity (PPP) exchange rates (see sidebar "Comparing International R&D Expenditures").
Worldwide R&D performance is concentrated in a few developed nations. In 2000, global R&D expenditures totaled at least $729 billion, half of which was accounted for by the two largest countries in terms of R&D performance, the United States and Japan. As figure
Wealthy, well-developed nations, generally represented by OECD member countries, perform most of the world's R&D, but several lesser-developed nations now report higher R&D expenditures than most OECD members. In 2000, Brazil performed an estimated $13.6 billion of R&D, roughly half the amount performed in the United Kingdom (RICYT 2004). India performed an estimated $20.0 billion in 2000, making it the seventh largest country in terms of R&D in that year, ahead of South Korea (UNESCO/UIS 2005). China was the fourth largest country in 2000 in terms of R&D performance, with $48.9 billion of R&D, only slightly less than the $50.9 billion of R&D performed in Germany (OECD 2004). In 2002, an estimated $72.0 billion of R&D was performed in China, making it the third largest country in terms of R&D performance. Given the lack of either R&D-specific exchange rates (see sidebar "Comparing International R&D Expenditures") or accepted qualitative measures of international R&D (see sidebar "Qualitative Comparisons of International R&D"), it is difficult to draw conclusions from these absolute R&D figures.
The 30 OECD countries represented 82% of global R&D, or $602 billion, in 2000. Although global R&D estimates are not available for later years, the R&D performance of OECD countries grew to $652 billion in 2002. The G-7 countries (Canada, France, Germany, Italy, Japan, the United Kingdom, and the United States) performed over 83% of OECD R&D in 2002. The three largest R&D performers, the United States, Japan, and Germany, account for over two-thirds of the OECD's R&D. The United States accounts for 43% of OECD R&D, a slight drop in share from 2000 when it performed 44% of all OECD R&D. Outside of the G-7 countries, South Korea is the only country that accounted for a substantial share of the OECD total (3.5% in 2002, up from 3.1% in 2000).
More money was spent on R&D activities in the United States in 2002 than in the rest of the G-7 countries combined (figure
International comparisons of absolute R&D expenditures are complicated by the fact that countries vary widely in terms of the sizes of their population and economy. For example, although Germany and China had roughly equivalent R&D expenditures in 2000, China's population was over 15 times as large and its economy was over twice as large as Germany's in that year. Policymakers commonly use various measures of R&D intensity to account for these size differences when making international comparisons.
One of the first and now one of the more widely used indicators of a country's R&D intensity is the ratio of R&D spending to GDP, the main measure of a nation's total economic activity (Steelman 1947). Policymakers often use this ratio for international benchmarking and goal setting (see sidebar "European Union Strategy for R&D and Economic Competitiveness").
Normalized indicators, such as R&D/GDP ratios, are useful for international comparisons because they both account for size differences between countries and obviate the need for exchange rates. However, even normalized indicators are not always comparable from one country to another. This occurs most often when the variable being used to normalize the indicator differs across countries. For example, the structure of national economies, and hence GDP, varies greatly. As figure
Total R&D/GDP Ratios
The ratio of R&D expenditures to GDP is a useful indicator of the intensity of R&D activity in relation to other economic activity and can be used to gauge a nation's commitment to R&D at different points in time. In the United States, the slow-down in GDP growth in 2001 preceded the decline of U.S. R&D in 2002. This resulted in U.S. R&D to GDP ratios of 2.7% in 2001 (a recent high) and 2.6% in 2002 (figure
Since 1953, U.S. R&D expenditures as a percentage of GDP have ranged from a minimum of 1.4% (in 1953) to a maximum of 2.9% (in 1964). Most of the growth over time in the R&D/GDP ratio can be attributed to steady increases in nonfederal R&D spending. Nonfederally financed R&D, the majority of which is company financed, increased from 0.6% of GDP in 1953 to an estimated 1.9% of GDP in 2004 (down from a high of 2.1% of GDP in 2000). The increase in nonfederally financed R&D as a percentage of GDP illustrated in figure
Historically, most of the peaks and valleys in the U.S. R&D/GDP ratio can be attributed to changing priorities in federal R&D spending. The initial drop in the R&D/GDP ratio from its peak in 1964 largely reflects federal cutbacks in defense and space R&D programs. Gains in energy R&D activities between 1975 and 1979 resulted in a relative stabilization of the ratio. Beginning in the late 1980s, cuts in defense-related R&D kept federal R&D spending from keeping pace with GDP growth, whereas growth in nonfederal sources of R&D spending generally kept pace with or exceeded GDP growth. Since 2000, defense-related R&D spending has surged, and federal R&D spending growth has outpaced GDP growth. (See the discussion of defense-related R&D earlier in this chapter.)
For many of the G-8 countries (i.e., the G-7 countries plus Russia), 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 (figure
Geopolitical events also affect R&D intensity indicators as evidenced by Germany and Russia. Germany's R&D/GDP ratio fell from 2.8% at the end of the 1980s, before reunification, to 2.2% in 1994. Its R&D/GDP has since risen to 2.5% in 2003. The end of the Cold War and collapse of the Soviet Union had a drastic effect on Russia's R&D intensity. R&D performance in Russia was estimated at 2.0% of GDP in 1990; that figure dropped to 1.4% in 1991 and then dropped further to 0.7% in 1992. The severity of this decline is compounded by the fact that Russian GDP contracted in each of these years. Both Russia's R&D and GDP exhibited strong growth after 1998. In the 5 years between 1998 and 2003, Russia's R&D doubled and its R&D/GDP ratio rose from 1.0% to 1.3%.
Overall, the United States ranked fifth among OECD countries in terms of reported R&D/GDP ratios (table
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 in R&D than do OECD members (with the exception of Israel). All Latin American countries for which such data are available report R&D/GDP ratios at or below 1% (table
Nondefense R&D Expenditures and R&D/GDP Ratios
Another indicator of R&D intensity, the ratio of non-defense R&D to GDP, is useful when comparing nations with different financial investments in national defense. Although defense-related R&D does result in spillovers that produce social benefits, nondefense R&D is more directly oriented toward national scientific progress, standard-of-living improvements, economic competitiveness, and commercialization of research results. Using this indicator, the relative position of the United States falls below that of Germany and just above France among the G-7 nations (figure
Since the end of the Cold War, the relative share of defense-related R&D has diminished markedly in several countries. Between 1988 and 2002, the defense share of R&D fell from 31% to 16% in the United States and from 19% to 8% in France. Between 1989 and 2002, the defense share of R&D fell from 23% to 10% in the United Kingdom. The defense-related share of R&D is higher in Russia (30% in 2002), where, unlike in the G-7 countries, the government funds the majority of national R&D (see the section entitled "International R&D by Performer and Source of Funds").
Basic Research/GDP Ratios
R&D involves a wide range of activities, ranging from basic research to the development of marketable goods and services. Basic research generally has low short-term returns, but it builds intellectual capital and lays the groundwork for future advances in S&T. The relative investment in basic research as a share of GDP therefore indicates differences in national priorities, traditions, and incentive structures with respect to S&T. Estimates of basic research often involve a greater element of subjective assessment than other R&D indicators; thus, only half of the OECD member countries report these data at the national level. Nonetheless, where these data exist, they help differentiate the national innovation systems of different countries in terms of how their R&D resources contribute to advancing scientific knowledge and developing new technologies.
High basic research/GDP ratios generally reflect the presence of robust academic research centers in the country and/or a concentration of high-technology industries (such as biotechnology) with patterns of strong investment in basic research (see "International R&D by Performer and Source of Funds"). Of the OECD countries for which data are available, Switzerland has the highest basic research/GDP ratio at 0.7% (figure
China , despite its growing investment in R&D, reports among the lowest basic research/GDP ratios (0.07%), below Argentina (0.10%) and Mexico (0.12%) (figure
R&D per Capita
Although R&D as a percentage of GDP is the most commonly used indicator for international comparisons of S&T, regional differences in R&D intensity are even more pronounced using the indicator of R&D expenditures per capita (figure
R&D performance patterns by sector are broadly similar across countries, but national sources of support differ considerably. In each of the G-8 countries the industrial sector is the largest performer of R&D (figure
In all of the G-8 countries except Russia, the academic sector was the second largest R&D performer (representing from 15% to 35% of R&D performance in each country). In Russia, government is the second largest R&D performer, accounting for 25% of its R&D performance in 2003. Government-performed R&D is even more prominent in China, where it accounted for an estimated 30% of Chinese R&D performance in 2002.
Government and industry together account for over three-quarters of the R&D funding in each of the G-8 countries, although their respective contributions vary (figure
In nearly all OECD countries, the government's share of total R&D funding has declined over the past two decades, as the role of the private sector in R&D grew considerably (figure
Canada and the United Kingdom both report relatively large amounts of R&D funding from abroad (12% and 18%, respectively), much of which originates from foreign business enterprises (figure
The structure of industrial R&D varies substantially among countries in terms of both sector concentration and sources of funding. Because industrial firms account for the largest share of total R&D performance in each of the G-8 countries and most OECD countries, differences in industrial structure can help explain international differences in more aggregated statistics such as R&D/GDP. For example, countries with higher concentrations of R&D-intensive industries (such as communications equipment manufacturing) are likely to also have higher R&D/GDP ratios than countries whose industrial structures are weighted more heavily toward less R&D-intensive industries.
Using internationally comparable data, in 2002 no one industry accounted for more than 11% of total business R&D in the United States (figure
Compared with the United States, many of the other countries shown in figure
Other industries also exhibit relatively high concentrations of R&D by country. Automotive manufacturers rank among the largest R&D-performing companies in the world (see sidebar "R&D Expenses of Public Corporations"). Because of this, the countries that are home to the world's major automakers also boast the highest concentration of R&D in the motor vehicles industry. This industry accounts for 29% of Germany's business R&D, 27% of the Czech Republic's, and 19% of Sweden's, reflecting the operations of automakers such as DaimlerChrysler and Volkswagen in Germany, Skoda in the Czech Republic, and Volvo and Saab in Sweden. Japan, France, South Korea, and Italy are also home to large R&D-performing firms in this industry.
The pharmaceuticals industry is less geographically concentrated than the automotive industry, but is still prominent in several countries. The pharmaceuticals industry accounts for over 20% of business R&D in the United Kingdom, Belgium, and Denmark. The United Kingdom is the largest performer of pharmaceutical R&D in Europe and is home to GlaxoSmithKline, the second largest pharmaceutical company in the world in terms of R&D expenses in 2002 and 2003 (table
The office, accounting, and computing machinery industry represents only a small share of business R&D in most countries, with the United States and Japan accounting for over 90% of this industry's R&D among OECD countries (appendix table
One of the more significant trends in both U.S. and international industrial R&D activity has been the growth of R&D in the service sector. In the European Union (EU), service-sector R&D has grown from representing 8% of business R&D in 1992 to 15% in 2002 (figure
Sources of Industrial R&D Funding
Most of the funding for industrial R&D in each of the G-8 countries is provided by the business sector. In most OECD countries government financing accounts for a small and declining share of total industrial R&D performance (figure
Foreign sources of funding for business R&D increased in many countries between 1981 and 2003 (figure
In many OECD countries, the academic sector is a distant second to industry in terms of national R&D performance. Among G-8 countries, universities accounted for as little as 6% of total R&D in Russia to as much as 35% in Canada; they accounted for 17% of U.S. total R&D (figure
Source of Funds
For most countries, the government is now, and historically has been, the largest source of academic research funding (see sidebar "Government Funding Mechanisms for Academic Research"). However, in each of the G-7 countries for which historical data exist, the government's share has declined since 1981, and industry's share has increased. This trend has been most evident in Germany, where the industry-funded share of academic R&D is twice that of all OECD members combined, and in Canada (figure
Most countries supporting a substantial level of academic R&D (at least $1 billion PPPs in 1999) devote a larger proportion of their R&D to engineering and social sciences than does the United States (table
Analyzing public expenditures for R&D by major socio-economic objectives shows how government priorities differ considerably across countries and change over time. Within the OECD, the defense share of governments' R&D financing declined from 43% in 1986 to 29% in 2001 (table
Notable shifts also occurred in the composition of OECD countries' governmental nondefense R&D support over the past two decades. In terms of broad socioeconomic objectives, government R&D shares increased most for health and the environment. Growth in health-related R&D financing was particularly strong in the United States, whereas many of the other OECD countries reported relatively higher growth in environmental research programs. In 2001 the U.S. government devoted 24% of its R&D budget to health-related R&D, making such activities second in magnitude only to defense. Conversely, the relative share of government R&D support for economic development programs declined considerably in the OECD, from 38% in 1981 to 22% in 2001. 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.
Differing R&D activities are emphasized in each country's governmental R&D support statistics (figure
Japan committed 17% of its governmental R&D support to energy-related activities, reflecting the country's historical concern over its high dependence on foreign sources of energy. Canada, Russia, and South Korea all allocate two to three times as much of their R&D budgets to agriculture than the other countries in figure
Compared with other countries, France and South Korea invested relatively heavily in nonoriented research at 22% of government R&D appropriations. The U.S. government invested 6% of its R&D budget in nonoriented research, largely through the activities of NSF and DOE.
 OECD maintains R&D expenditure data that can be categorized into three periods: (1) 1981 to the present (data are properly annotated and of good quality); (2) 1973 to 1980 (data are probably of reasonable quality, and some metadata are available); and (3) 1963 to 1972 (data are questionable for most OECD countries [with notable exceptions of the United States and Japan], many of which launched their first serious R&D surveys in the mid-1960s). The analyses in this chapter are limited to data for 1981 and subsequent years. The 30 current members of the OECD are Australia, Austria, Belgium, Canada, Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Iceland, Ireland, Italy, Japan, Korea, Luxembourg, Mexico, Netherlands, New Zealand, Norway, Poland, Portugal, Slovak Republic, Spain, Sweden, Switzerland, Turkey, United Kingdom, and United States.
 The global R&D figure is estimated based on data for 80 countries compiled from three sources. Estimates for 31 countries were taken from OECD data, estimates for 18 additional countries were taken from RICYT data, and estimates for the remaining 25 countries were taken from UNESCO reports.
 Because U.S. universities generally do not maintain data on departmental research, U.S. totals are understated relative to the R&D effort reported for other countries. The national totals for Europe, Canada, and Japan include the research component of GUF block grants provided by all levels of government to the academic sector. These funds can support departmental R&D programs that are not separately budgeted. The U.S. federal government does not provide research support through a GUF equivalent, preferring instead to support specific, separately budgeted R&D projects. However, a fair amount of state government funding probably does support departmental research at public universities in the United States. See sidebar, "Government Funding Mechanisms for Academic Research."
 The United Kingdom similarly experienced 3 years of declining real R&D expenditures, but its slump took place in 1995, 1996, and 1997. The falling R&D totals in Germany were partly a result of specific and intentional policies to eliminate redundant and inefficient R&D activities and to integrate the R&D efforts of the former East Germany and West Germany into a united German system.
 Growth in the R&D/GDP ratio does not necessarily imply increased R&D expenditures. For example, the rise in R&D/GDP from 1978 to 1985 was due as much to a slowdown in GDP growth as it was to increased spending on R&D activities.
 A significant contributor to GDP growth in 2003 and 2004 was increased private domestic investment in information processing equipment and software. Because increased demand for high-technology goods and services is an incentive for increased R&D expenditures, this component of GDP is a useful indicator of private R&D expenditures by information technology businesses.
 Nonfederal sources of R&D tracked by NSF include industrial firms, universities and colleges, nonprofit institutions, and state and local governments.
 See OECD (1999) for further discussion of these and other broad R&D indicators.
 In accordance with international standards, the following sectors are recognized sources of funding: all levels of government combined, business enterprises, higher education, private nonprofit organizations, and funds from abroad. Italy's distribution of R&D by source of funds was not available for 2000. In earlier years, government sources accounted for more than half of Italy's R&D, industry accounted for more than 40%, and foreign sources funded the remainder.
 Among all OECD countries, in 2002 the government sector accounted for the highest funding share in Poland (61%) and the lowest share in Japan (18%).
 Some of the R&D reported in the trade industry for the United States was redistributed for this analysis.
 Since the mid-1980s, European Community (EC) funding of R&D has become increasingly concentrated in its multinational Framework Programmes for Research and Technological Development (RTD), which were intended to strengthen the scientific and technological bases of community industry and to encourage it to become more internationally competitive. EC funds distributed to member countries' firms and universities have grown considerably. The EC budget for RTD activities has grown steadily from 3.7 billion European Currency Units (ECU) in the First Framework Programme (1984–87) to 17.5 billion ECU for the Sixth Framework Programme (2003–06). The institutional recipients of these funds tend to report the source as "foreign" or "funds from abroad." Eurostat. 2001. Statistics on Science and Technology in Europe: Data 1985–99. Luxembourg : European Communities.
 OECD data for the U.S. academic sector includes the R&D of university-administered FFRDCs. These FFRDCs performed an estimated $7.3 billion of R&D in 2003.
 In international S&E field compilations, the natural sciences comprise math and computer sciences, physical sciences, environmental sciences, and all life sciences other than medical and agricultural sciences.
 Data on the socioeconomic objectives of R&D funding are generally derived from national budgets. Because budgets each have their own distinct methodology and terminology, these R&D funding data may not be as comparable as other types of international R&D data.
 Health and environment programs include human health, social structures and relationships, control and care of the environment, and exploration and exploitation of the Earth.
 Historically, Russia has also devoted a large share of government R&D to industrial development. Fully 27% of the government's 1998 R&D budget appropriations for economic programs were used to assist in the conversion of the country's defense industry to civil applications (American Association for the Advancement of Science and Centre for Science Research and Statistics, 2001).