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
Data on R&D expenditures are often used to make international comparisons, in part because of the relative ease of comparing monetary data across countries. But although it is possible to compare the cost of R&D in two countries, differences in their national systems of innovation may make one country more effective than the other in translating investments in S&T into economic growth or other social benefits. Although it can be difficult to assess the qualitative differences in the R&D and innovation systems in different countries, it is important to keep these differences in mind when analyzing data presented in this section on international R&D spending patterns.
Most of the R&D data presented in this section are from the 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 (with variable levels of international comparability), 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").
Global R&D Expenditures
Worldwide R&D performance is concentrated in a few developed nations. In 2002, global R&D expenditures totaled at least $813 billion; one-third of this world total was accounted for by the United States, the largest country in terms of domestic R&D expenditures, and 45% of this total was accounted for by the two largest countries in terms of R&D performance, the United States and Japan.
Wealthy, well-developed nations, generally represented by OECD countries, perform most of the world's R&D, but R&D expenditures have grown rapidly in several lesser-developed nations. In 2004, Brazil performed an estimated $14 billion of R&D (RICYT 2007), although the compilations of its R&D statistics do not yet fully conform to OECD guidelines. 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 (UNESCO/Institute for Statistics 2007). China had the fourth largest expenditures on R&D in 2000 ($45 billion), behind Germany's $52 billion (OECD 2006b). In 2005, it is estimated that $115 billion of R&D was performed in China, making it the third largest country in terms of R&D expenditures. Given the lack of R&D-specific exchange rates (see sidebar, "Comparing International R&D Expenditures"), it is difficult to draw conclusions from these absolute R&D figures, but China's nearly decade-long ramp-up of R&D expenditures appears unprecedented in recent years.
OECD and G-7 R&D Expenditures
The 30 OECD countries represented 81% of global R&D, or $657 billion, in 2002. Although global R&D estimates are not available for later years, the R&D performance of OECD countries grew to $726 billion in 2004. The G-7 countries performed two-thirds of the world's R&D in 2002 and 83% of OECD's 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 (4% in 2004).
More money was spent on R&D activities in the United States in 2004 than in the rest of the G-7 countries combined
Indicators of R&D Intensity
International comparisons of absolute R&D expenditures are complicated by the fact that countries vary widely in terms of the size of their population and economy. For example, although Germany and China had similar R&D expenditures in 2000, China's population was more than 15 times larger, and its economy more than twice as large, as Germany's in that year. Policy analysts commonly use various measures of R&D intensity to account for these size differences when making international comparisons.
One of the first (Steelman 1947) 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. Policymakers often use this ratio for international benchmarking and goal setting.
Normalized indicators, such as R&D/GDP ratios, are useful for international comparisons because they not only account for size differences between countries, but they also 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
Total R&D/GDP Ratios
The ratio of R&D expenditures to GDP can indicate 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. For example, since 1953, R&D expenditures as a percentage of GDP in the United States 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 increases in nonfederal R&D spending, the majority of which is company financed. Nonfederally financed R&D increased from 0.6% of GDP in 1953 to a projected 1.9% of GDP in 2006 (down from a high of 2.0% of GDP in 2000). The increase in nonfederally financed R&D as a percentage of GDP illustrated in
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, while 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
Because of the business sector's dominant role in global R&D funding and performance, R&D/GDP ratios are most useful when comparing countries with national S&T systems of comparable maturity and development. Geopolitical events also affect R&D intensity indicators, as evidenced by Germany and Russia. [West] Germany's R&D/GDP ratio fell from 2.8% at the end of the 1980s, before reunification, to 2.2% in 1994 for all of Germany. Its R&D/GDP has since risen to 2.5% in 2005. 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. Between 1998 and 2003, Russia's R&D doubled, and its R&D/GDP ratio rose from 1.0% to 1.3%. This growth was not maintained in the subsequent 2 years, and Russia's R&D/GDP ratio dropped to 1.1% in 2005.
Overall, the United States ranked seventh among OECD countries in terms of reported R&D/GDP ratios
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 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% (RICYT 2007). This distribution is consistent with broader indicators of economic growth and wealth.
Nondefense R&D Expenditures and R&D/GDP Ratios
Another indicator of R&D intensity, the ratio of nondefense 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 commercial and social benefits, nondefense R&D is more directly oriented toward national scientific progress, economic competitiveness, and standard-of-living improvements. Using this indicator, the relative position of the United States falls below that of Germany and just above Canada among the G-7 nations
Basic Research/GDP Ratios
R&D involves a wide range of activities, ranging from basic research to the development of marketable goods and services. Because it is motivated primarily by curiosity, basic research generally has low short-term returns, but it builds intellectual capital and lays the groundwork for future advances in S&T. (See sidebar, "Definitions of R&D.") The relative investment in basic research as a share of GDP 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, approximately 40% of the OECD countries do not report these data at the national level. Nonetheless, where these data exist, they help differentiate national innovation systems 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 the section entitled "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 0.8%
China, despite its growing investment in R&D, reports among the lowest basic research/GDP ratios (0.07%), below Romania (0.08%) and Mexico (0.11%). With its emphasis on applied research and development aimed at short-term economic development, China follows the pattern set by Taiwan, South Korea, and Japan. In each of these economies, basic research accounts for 15% or less of total R&D
International R&D by Performer and Source of Funds
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
In all of the G-8 countries except Russia, the academic sector was the second largest performer of R&D (representing from 13% to 38% of R&D performance in each country). In Russia, government is the second largest R&D performer, accounting for 26% of its R&D performance in 2005. Government-performed R&D accounted for 22% of China's R&D in 2005, down from 32% in 2000.
Government and industry together account for more than three-quarters of the R&D funding in each of the G-8 countries, although their respective contributions vary
In nearly all OECD countries, the government's share of total R&D funding declined during the 1980s and 1990s as the role of the private sector in R&D grew considerably
Not all countries track the amount of domestic R&D that is funded by foreign sources, but of those that do, the United Kingdom reports a relatively large amount of R&D funding from abroad (17% in 2004)
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, no one industry accounted for more than 16% of total business R&D in the United States in 2004 (
Compared with the United States, many of the other countries shown in
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 32% of Germany's business R&D, 26% 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 20% or more of business R&D in Denmark, the United Kingdom, Belgium, and Sweden. Denmark, the largest performer of pharmaceutical R&D in Europe, is home to Novo Nordisk, a world leader in the manufacture and marketing of diabetes-related drugs and industrial enzymes, and H. Lundbeck, a research-based company specializing in psychiatric and neurological pharmaceuticals. The United Kingdom is the second 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 expenditures in 2003 and 2004
The office, accounting, and computing machinery industry represents only a small share of business R&D in most countries. Among OECD countries (
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 9% of business R&D in 1993 to 15% in 2003. In 2003, the EU's service-sector R&D nearly equaled that of its motor vehicles industry and more than doubled that of its aerospace industry. According to national statistics for recent years, the service sector accounted for less than 10% of total industrial R&D performance in only four of the countries shown in
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, and in most OECD countries, government financing accounted for a small and declining share of total industrial R&D performance during the 1980s and 1990s
Foreign sources of funding for business R&D increased in many countries in the 1990s
This funding predominantly comes from foreign corporations and can be viewed as an indicator of the globalization of industrial R&D. However, some of this funding also comes from foreign governments and other foreign organizations. For European countries, growth in foreign sources of R&D funds may reflect the expansion of coordinated European Community (EC) efforts to foster cooperative shared-cost research through its European Framework Programmes.
There are no data on foreign funding sources of U.S. R&D performance. However, data on investments by foreign MNCs provide some indication of this activity for the industrial sector (see the section entitled "R&D by Multinational Corporations" later in this chapter).
In most 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 38% in Canada, and they accounted for 14% of U.S. total R&D
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 declined and industry's share increased during the 1980s and 1990s. Business funding of academic R&D for all OECD countries combined peaked in 2000 at 7% but declined to 6% in 2004. In the United States, it slipped to 5% in 2003, where it has since remained. Among OECD countries, the business sector's role in funding academic R&D is most prominent in Germany where the industry-funded share of academic R&D is twice that of all OECD members combined
Most countries supporting a substantial level of academic R&D devote a larger proportion of their R&D to engineering and social sciences than does the United States
Government R&D Priorities
Analyzing public expenditures for R&D by major socioeconomic objectives shows how government priorities differ between countries and change over time. Within the OECD, the defense share of governments' R&D financing declined from 43% in 1986 to 28% in 2001
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 the United States, health-related R&D has accounted for more than half of the government's nondefense R&D budget since 2000. Throughout the OECD, the relative share of government R&D support for economic development programs declined from 25% in 1981 to 15% in 2005. Economic development programs include the promotion of agriculture, fisheries and forestry, industry, infrastructure, and energy.
Differing R&D activities are emphasized in each country's governmental R&D support statistics
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. Industrial production and technology is the leading socioeconomic objective for R&D in South Korea, accounting for 27% of its government's R&D budget. This funding is primarily oriented toward the development of science-intensive industries and is aimed at increasing economic efficiency and technological development. Industrial technology programs accounted for less than 1% of the U.S. total. This figure, which includes mostly R&D funding by NIST, is understated relative to most other countries as a result of data compilation differences. In part, the low U.S. industrial development share reflects the expectation that firms will finance industrial R&D activities with their own funds; in part, government R&D that may be indirectly useful to industry is often funded with other purposes in mind such as defense and space (and is therefore classified under other socioeconomic objectives).
Compared with other countries, France and South Korea invested relatively heavily in nonoriented research at 18% and 21% of government R&D appropriations, respectively. The U.S. government invested 6% of its R&D budget in nonoriented research, largely through the activities of NSF and DOE. However, differences in countries' classification practices affect the size of this apparent gap.
 For other S&T indicators on Asian countries relative to the United States and the EU, see NSF/SRS (2007a).
 For discussions of R&D diversity measurement, see Archibugi and Pianta (1992). Also see Archibugi and Pianta (1996).
 Since the mid-1980s, 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 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).