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Global Expansion of Research and Development Expenditures

In a telling development, the world's R&D expenditures have been on an 11-year doubling path, growing faster than total global economic output.[2] This indicator of commitment to innovation went from an estimated $525 billion in 1996 to approximately $1.1 trillion in 2007 (figure O-1 ). The specific data point for each year shown in figure O-1 is an imprecise estimate, but the steady and large upward trend illustrates the rapidly growing global focus on innovation.[3]

The United States remained by far the single largest R&D-performing country. Its R&D expenditure of $369 billion in 2007 exceeded the Asian region's total of $338 billion and the EU's (EU-27) $263 billion[4] (figure O-2 ). The U.S. 2007 total broadly matched the combined R&D expenditures of the next four largest countries: Japan, China, Germany, and France.

If R&D expenditures are long-term investments in innovation, how much of a nation's economic activity should be devoted to them? A U.S. goal in the 1950s was to achieve an R&D investment of 1% of GDP by 1957. More recently, many governments set their sights at 3% of GDP in pursuit of developing knowledge-based economies; the EU formally embraced the 3% goal as its long-term planning target.[5]

Nearly everywhere, however, decisions affecting the bulk of R&D expenditures are made by industry, thus removing achievement of such a target from direct government control. In the United States, industry funds about 67% of all R&D. For the EU, it is 55%, but with considerable range (e.g., nearly 70% for Germany and 45% for the United Kingdom). In China, Singapore, and Taiwan, industry funding ranges from 60% upward. Nevertheless, government planners monitor the R&D/GDP ratio as an indicator of innovative capacity, even as few countries reach the 3% mark.

Over the past decade, many Asian developing economies have exhibited increased R&D/GDP ratios; conversely, those in the United States and the EU have broadly held steady. Japan's R&D expenditures amounted to 3.4% of GDP in 2007; South Korea's increased steeply after the 1990s and reached 3.5% in 2007.

China's R&D/GDP ratio more than doubled, from 0.6% in 1996 to 1.5% in 2007, a period during which China's GDP grew at 12% annually—an enormous, sustained increase. The gap in China's R&D/GDP ratio relative to those of developed economies suggests that China's R&D volume can continue to grow rapidly (figure O-3 ).

Decade-long R&D growth rates of mature S&T countries differ dramatically from those of developing economies. Growth of R&D expenditures in the United States, the EU, and Japan averaged about 5%–6% annually, not adjusted for inflation. Asian growth ranged from about 9% to 10% for India, South Korea, and Taiwan to more than 20% for China. Asian R&D growth reflects rising private spending by domestic and foreign firms, as well as increased public R&D spending designed to support strategic policies that aim to raise economic competitiveness through the development of knowledge-based economies (figure O-4 ).

The relatively greater R&D growth rates in Asia (excluding Japan) resulted in decreases in the percentages of world R&D expenditures for the mature S&T establishments—United States, the EU, and Japan—that were substantial, especially in view of the short period and large expenditures involved. The North America region's (United States, Canada, and Mexico) share of estimated world R&D activity decreased from 40% to 35%; the EU's share declined from 31% to 28%. The Asia/Pacific region's share increased from 24% to 31% even with Japan's comparatively low growth, and the share of the rest of the world increased from 5% to 6%—still a modest level but a very large relative gain that indicates the broadly shared belief in the importance of R&D for economic development (figure O-5 ).


[2] The World Bank estimates global gross national income to have increased about 80% over the period (current PPP dollars).
[3] These estimates rely on data from the Organisation for Economic Co-operation and Development (OECD) and the United Nations Educational, Scientific, and Cultural Organization Institute for Statistics; they are not precise measures. Reported data are converted to dollar totals using purchasing power parities (PPPs), the local costs of a market basket of goods and services; the accuracy of this standard economic conversion may degrade in the case of developing economies. In addition, estimation of some missing data and variable reporting mean that there is uncertainty about any specific point estimate. The reader's focus is directed to the overall trend, which reflects an internally consistent estimate over time.
[4] The latest updated 2007 U.S. R&D estimate is $398 billion; see The overview uses the most recent OECD number to allow more direct comparison with other countries' values.
[5] European Commission, Barcelona European Council, Presidency Conclusions (Barcelona, Spain, March 2002).

Science and Engineering Indicators 2010   Arlington, VA (NSB 10-01) | January 2010