Chapter Overview

As nations seek to develop knowledge-based aspects of their economies, science, engineering, and related technological activities are recognized as key drivers. Furthermore, industrial R&D has become increasingly interconnected financially, geographically, and functionally across a number of dimensions, including performing, funding, and user sectors; scientific disciplines; and business functions.

Innovation—the introduction of new goods, services, or processes in the marketplace—builds on new knowledge and technologies, contributes to national competitiveness and government agencies' missions, and furthers social welfare. A distinction is made between R&D and the implementation or commercialization of the resulting knowledge. R&D expenditures indicate the priority given to advancing science and technology (S&T) relative to other public and private goals. For example, R&D must compete for funding with other activities supported by discretionary government spending, from education to energy to national defense. In the private sector, R&D and other innovation investments are also subject to cost-benefit analyses, including productivity and organizational issues, and are increasingly linked to broader strategic business goals.

The continued policy relevance of the national innovation landscape, which includes, for example, R&D, education, tax incentives, and intellectual property protection, is reflected in the American Competitiveness Initiative (OSTP 2006) and in the recently enacted America COMPETES Act (Public Law 110–69). In support of these efforts, Dr. John H. Marburger III, the president's S&T adviser, has challenged the policy, research, and statistical community to develop better data, models, and tools for understanding the U.S. scientific and engineering enterprise in its global context by advancing the science of science policy. Concurrently, international bodies such as the Organisation for Economic Co-operation and Development's (OECD) Working Party of National Experts on Science and Technology Indicators and the United Nations Statistical Commission have engaged in several research and methodological activities to improve metrics, including work leading to new or updated statistical manuals on innovation, globalization, national economic accounts, and services trade.

Because the organizations that fund R&D shape how it is performed and what kinds of innovations nations ultimately produce, this chapter focuses on financial inputs and flows. The chapter also presents trends in R&D performance, notably R&D by industry and the federal government. Where data permit, the chapter includes comparisons with other countries. Analyses of the R&D activities of multinational corporations (MNCs) point out the importance of this growing interconnectedness. Global R&D and related international investments still are concentrated in a few developed countries or regions. However, during the past decade, certain developing markets have increased their national R&D expenditures and have become hosts of R&D by MNCs from the United States and other advanced economies.

The chapter also introduces new indicators of industrial knowledge flows in terms of U.S. international trade in R&D-related services. Transactions in these services represent the convergence of two recent trends in industrial S&T: an increase in R&D performance in the service sector and an increase in external and overseas links in innovation activities.

Chapter Organization

This chapter is organized into seven sections that examine trends in R&D domestic and international expenditures and collaborative technology activities. The first section provides an overview of national trends in R&D performance and R&D funding. The second analyzes data on the location of R&D performance in the United States. The third and fourth sections focus on the respective roles of business enterprises and the federal government in the R&D enterprise. The latter section also includes indicators on federal and state tax incentives for industrial R&D.

International R&D trends within nations and MNCs are discussed in the fifth and sixth sections, respectively. The former includes total and nondefense R&D spending; ratios of R&D to gross domestic product (GDP) in various nations; international R&D funding by performer and source; the allocation of R&D efforts among components (basic research, applied research, and development); and international comparisons of government R&D priorities. The sixth section presents data on R&D by U.S. MNCs and their overseas affiliates and by affiliates of foreign companies in the United States. Data include R&D expenditures by investing or host countries and their industrial focus, and R&D employment.

The last section summarizes available information on external technology sourcing and collaborative R&D activities across R&D-performing sectors, including domestic contract R&D, international trade in R&D services, business technology alliances, and federal technology transfer.

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