National R&D Trends

U.S. R&D expenditures have continued to rise steadily since 2002, reaching an estimated $340 billion in 2006.

  • After having declined in nominal terms in 2002 for the first time since 1953 to $277 billion, U.S. R&D surpassed $300 billion in 2004 and is projected to increase further to $340 billion in 2006.
  • In inflation-adjusted terms, this increase represents a 2.5% average annual change over the past 4 years.

The business sector accounts for the largest share of R&D performance in the United States and provides most of the nation's R&D funding.

  • The business sector's share of U.S. R&D performance peaked in 2000 at 75%, but following the economic slowdown of 2001 and 2002, the business activities of many R&D-performing firms were curtailed, with the result that the industry share fell to 69% of the U.S. R&D total, until rising again to 71% in 2006.
  • In terms of funding, the business sector's share peaked at 70% of total also in 2000 but has since dipped somewhat to 64% in 2004 before inching back up to 66% of the 2006 R&D total.
  • The federal share of R&D funding first fell below 50% in 1979 and dropped to a low of 25% in 2000. Reflecting initially and primarily increased research spending on health and more recently development spending in the areas of defense and counterterrorism, the federal share of R&D funding is projected at 28% of the R&D funding total in 2006.

U.S. R&D is dominated by development expenditures, largely performed by the business sector, with most basic research conducted at universities and colleges.

  • In 2006, the United States performed an estimated $62 billion of basic research, $75 billion of applied research, and $204 billion of development.
  • Universities and colleges historically have been the largest performers of basic research in the United States and now account for more than half (56% in 2006) of the nation's basic research. Most (59%) of the nation's basic research is federally funded.
  • The development of new and improved goods, services, and processes is dominated by the business sector, which funded 83% and performed 90% of all U.S. development in 2006. The federal government funded most of the remaining development performed in the United States, mostly on defense-related activities.

Location of R&D Performance

R&D is geographically concentrated, and states vary significantly in the types of research performed within their borders.

  • In 2004, more than three-fifths of U.S. R&D took place in 10 states. California alone accounted for more than onefifth of the $300 billion of R&D that could be attributed to one of the 50 states or the District of Columbia.
  • Federal R&D accounts for 85% of all R&D in New Mexico, the location of the two largest federally funded research and development centers (FFRDCs) in terms of R&D performance, Los Alamos National Laboratory and Sandia National Laboratories.
  • More then 70% of all R&D performed in the United States by computer and electronic products manufacturers is located in California, Massachusetts, Texas, and Illinois.
  • The R&D of chemicals manufacturing companies is particularly prominent in three states, accounting for 66% of New Jersey's, 54% of Pennsylvania's, and 50% of Connecticut's business R&D. Together these states represent more than 40% of the nation's R&D in this sector.

Business R&D

Business sector R&D reached a new high in 2005.

  • R&D performed by the business sector in the United States reached $226.2 billion in 2005 and is projected to have increased to $242 billion in 2006.
  • Since a peak of 4.2% in 2001, the average R&D-to-sales intensity of companies performing R&D in the United States has varied between 3.5% and 3.9%; in 2005 it was 3.7%.
  • Six industrial sectors account for more than three-fourths of all industrial R&D. The aggregate R&D intensity for these industries was 7.7% in 2005; for all other industries, the aggregate R&D intensity was 1.3%.

Federal R&D

In the president's 2008 budget submission, the federal government is slated to set aside $138 billion for R&D, amounting to 12.8% of its discretionary budget.

  • Federal agencies are expected to obligate $113 billion for R&D support in FY 2007. The seven largest R&Dfunding agencies (each with expected R&D obligations of more than $1 billion) account for 96% of total federal R&D.

Defense-related R&D dominates the federal R&D portfolio.

  • The largest R&D activity in the FY 2008 budget is defense, with a proposed budget authority of more than $82
    billion (mostly on development), or about 60% of the entire federal R&D budget ($138 billion).
  • In FY 2008, the Department of Defense (DOD) requested a research, development, testing, and evaluation budget of $78 billion.
  • Health accounts for the largest share of nondefense R&D support; 52% of the proposed FY 2008 nondefense R&D budget was for health-related programs

Federal and State R&D Tax Credits

Both the federal and state governments use business tax credits to promote R&D.

  • Federal R&D tax credit claims reached an estimated $5.5 billion in 2003, involving just under 10,400 corporate tax returns, compared with the all-time high of $7.1 billion in 2000.
  • At least 32 states offered credits for company-funded R&D in 2006. The first such credit was enacted by Minnesota in 1982, only a year after the federal research and experimentation credit was enacted. Since then, the number of states offering a research credit has increased gradually.

International R&D Comparisons

R&D is performed and funded primarily by a small number of developed nations.

  • In 2002 (the latest year of available data), global R&D expenditures totaled at least $813 billion, of which 45% was accounted for by the two largest countries in terms of R&D performance, the United States and Japan.
  • The R&D performance of Organisation for Economic Co-operation and Development (OECD) countries, which accounted for $657 billion in 2002, grew to $726 billion in 2004. The G-7 countries performed more than 83% of OECD R&D in 2004. Outside of the G-7 countries, South Korea is the only country that accounted for a substantial share of the OECD total.
  • More money was spent on R&D activities in the United States in 2004 than in the rest of the G-7 countries combined.
  • In 2004, Brazil performed an estimated $14 billion of R&D, and India performed an estimated $21 billion in 2000, making it the seventh largest country in terms of R&D in that year, ahead of South Korea.
  • China had the fourth largest expenditures on R&D in 2000 ($45 billion), which increased in 2005 to an estimated $115 billion. Given the lack of R&D-specific exchange rates, it is difficult to draw conclusions from these absolute R&D figures, but the country's nearly decade-long, steep ramp-up of R&D expenditures appears unprecedented in the recent past.

Industrial firms account for the largest share of total R&D performance in each of the G-8 countries and most OECD countries.

  • No one industry accounted for more than 16% of total business R&D in the United States; most other countries display much higher industry concentrations.
  • The pharmaceuticals industry accounts for 20% or more of business R&D in Denmark, the United Kingdom, Belgium, and Sweden. Among OECD countries, only the Netherlands and Japan report double-digit concentration of business R&D in the office, accounting, and computing machine industry.
  • Service-sector R&D has risen from 9% of all business R&D in 1993 to 15% in 2003 for European Union countries.

R&D intensity indicators, such as R&D/gross domestic product (GDP) ratios, also show the developed, wealthy economies well ahead of lesser-developed economies.

  • Overall, the United States ranked seventh among OECD countries in terms of reported R&D/GDP ratios. Israel (not an OECD country), devoting 4.7% of its GDP to R&D, led all countries, followed by Sweden (3.9%), Finland (3.5%), and Japan (3.2%).
  • In the United States, the slowdown in GDP growth in 2001 preceded the decline of U.S. R&D in 2002. This resulted in U.S. R&D/GDP ratios of 2.7% in 2001 (a recent high) and 2.6% in 2002 and thereafter. The U.S. R&D/ GDP ratio was an estimated 2.57% in 2006.
  • Most non-European (non-OECD) countries invest a smaller share of their economic output in R&D than do OECD members. For example, all Latin American countries for which such data exist have R&D/GDP ratios at or below 1%.
  • Despite its growing investment in R&D, China reports an R&D/GDP ratio of just 1.3% for 2005.

R&D by Multinational Corporations

R&D by affiliates of foreign companies located in the United States increased faster than overall U.S. industrial R&D.

  • Affiliates of foreign companies located in the United States performed $29.9 billion in R&D expenditures in 2004, little changed from 2003. However, between 1999 and 2004, R&D by these affiliates increased faster than overall industrial R&D in the United States (2.1% on an annual average rate basis after adjusting for inflation, compared with 0.2%).

Major developed economies accounted for the majority of overseas R&D expenditures by U.S. multinational corporations (MNCs), although certain Asian emerging markets increased their share.

  • Foreign affiliates of U.S. MNCs performed $27.5 billion in R&D abroad in 2004 after adjusting for inflation, up $4.7 billion, or 17.4%, from 2003. Affiliates located in Europe represented slightly more than two-thirds of the 2004 increase. Indeed, the share of this region rebounded from an all-time low of 61% in 2001 to 66% in 2004.
  • Concurrently, foreign affiliates of U.S. MNCs have increasingly engaged in R&D activities in Asian emerging markets. Within the Asia-Pacific region, Japan's share decreased from 64% in 1994 to 35% in 2004, even though it remains the largest host of U.S.-owned R&D in the region. By contrast, the R&D shares of foreign affiliates located in China and Singapore increased over this period.
  • R&D expenditures by affiliates located in India doubled from $81 million in 2003 to $163 million in 2004, pushing their share within this region to 3.3%.

International Trade in R&D-Related Services

Trade in research, development, and testing (RDT) services is a relatively new indicator of international knowledge and technology flows.

  • In 2005, exports of RDT services reached $10.1 billion, compared with imports of $6.7 billion, resulting in a trade surplus of $3.4 billion.
  • International transactions in RDT services are available for two major categories: trade among independent or unaffiliated companies and trade among affiliates of MNCs (affiliated trade). Affiliated RDT trade has been larger than unaffiliated trade since 2001, when the former became available for the first time. The prominence of affiliated trade in business services, particularly R&D-related services, may reflect advantages of internally managing, exploiting, and protecting complex or strategic transactions involving proprietary technical information.

Federal Technology Transfer

R&D performed at federal laboratories, whether run by federal agencies themselves or by contractors, represents a key source for knowledge and technologies.

  • Federal technology transfer activities and metrics reflect the variety of agency missions, R&D organization and funding structures (e.g., intramural versus extramural laboratories), the character of R&D activities, and the characteristics of potential downstream technologies or industrial users.
  • The Department of Energy and DOD had the largest shares of inventions disclosed and patents, whereas the National Institutes of Health/Food and Drug Administration had the largest share of new invention licenses, according to available data for FY 2005.
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