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Chapter 4. Research and Development: National Trends and International Linkages

International R&D Comparisons


Data on Government R&D Priorities expenditures can provide a broad picture of the changing distribution of R&D activities around the world. R&D data available from the OECD cover the organization's 30 member countries and 9 nonmembers. Data from the United Nations Educational, Scientific, and Cultural Organization's (UNESCO's) Institute for Statistics are used here to supplement OECD statistics in order to cover a larger set of countries. Increasingly, these data are collected following OECD standards, but the reader should treat them as broad indicators of trends and patterns rather than as precise measures.

International comparisons involve currency conversions. The discussion here follows the international convention to convert foreign currencies into U.S. dollars via purchasing power parity (PPP) exchange rates. (See sidebar "Comparing International R&D Expenditures.")


Global Patterns of R&D Expenditures

Worldwide R&D expenditures in 2007 totaled an estimated $1,107 billion. Although many countries conduct R&D, much of global R&D performance continues to be concentrated in a few high-income countries and regions.

Three regions predominate (figure 4-12 ). North America accounts for 35% ($393 billion) of worldwide R&D performance; Asia, 31% ($343 billion); and Europe, 28% ($313 billion). The small remainder, approximately 5%, reflects the R&D of countries in the Latin America/Caribbean, Pacific, and Africa/Middle East regions.

The concentration is more apparent when reviewing the data of specific countries (table 4-11 ). By itself, the United States accounts for about 33% of the current global R&D total. Japan, the second-largest performer, accounts for about 13%. China (9%) comes next, followed by Germany (6%) and France (4%).

The top two countries thus account for 47% of the global R&D total, whereas the top five countries represent about 66%. Adding the next 5 countries—South Korea, the United Kingdom, the Russian Federation, Canada, and Italy—increases the total to just below 80%, meaning that four-fifths of the world's R&D is concentrated in just 10 countries.

With respect to major geopolitical groupings, the R&D performance of the 27 nations of the European Union (EU-27) currently accounts for about 24% of the global total. The Group of Seven (G-7) industrialized countries, of which the United States is a member (along with Canada, France, Germany, Italy, Japan, and the United Kingdom), account for about 65%. The 30 countries constituting the OECD account for about 80% of worldwide R&D. (Among the current major R&D-performing nations, only China is not an OECD member.)

U.S. dominance of global R&D performance is notable as well with respect to these country groupings. U.S. R&D expenditures are currently 40% greater than the total for all of the EU-27 countries together. Within the G-7, the United States currently accounts for more than half (52%) of the R&D total. (The U.S. share was 48% in 1990. It has exceeded 50% since 1997.) Within the OECD, U.S. R&D is about 42% of the total.

According to OECD statistics (figure 4-13 ), total R&D by the EU-27 nations has been growing in real dollars over the past 10 years at an average annual rate of 3.3%. The pace of real growth during the same period for Germany, France, and the United Kingdom has been slower: averaging 2.9%, 1.8%, and 3.0%, respectively. By comparison, the U.S. pace of growth, on the same basis, has averaged 3.3%. Growth in Japan has been slower, at an annual average rate of 3.0%. For the OECD as a whole, real growth in R&D expenditures has also expanded on average at a rate of 3.6% annually over the past 10 years.

China continues to show the most dramatic growth pattern. The World Bank revised China's PPP exchange rate in late 2007, significantly lowering the dollar value of its R&D expenditures. Nonetheless, the pace of real annual growth over the past 10 years in China remains exceptionally high at just above 19%.

Finally, both India and Brazil are among the world's larger R&D performers, although neither has yet become part of OECD's statistical system. According to the UNESCO statistics, India performed $15 billion of R&D in 2004 (current U.S. dollars, PPP) and Brazil performed $13 billion in 2005. Both figures are about double the levels of R&D performance that each country reported in the mid-1990s. These levels of R&D expenditures would put both India and Brazil in the world's top 15 R&D performers.


Comparison of Country R&D Intensities

R&D intensity—typically measured as the ratio of a country's national R&D expenditures to GDP for a given year—provides another basis for international comparisons of R&D performance. This approach does not require conversion of a country's currency to a standard international benchmark yet still provides a way to adjust for differences in the sizes of national economies.

The structure of a national economy—that is, the relative prominence of agriculture, manufacturing, services, and so on—influences the interpretation of R&D intensity statistics. Businesses and organizations differ widely in their relative need for investment in the latest science and technology, and countries whose overall GDP depends considerably on industries in the high-technology sector will exhibit higher R&D/GDP ratios than other countries.

Figure 4-14 provides background information on the GDP composition of the current top 10 R&D-performing countries. Agriculture is a comparatively small component (4% or less) for 9 of these 10 countries; only China is an exception, where agriculture is currently about 11%. For all but four of the countries, services account for 70% or more of current GDP. In China (49%), South Korea (39%), and Russia (41%), industry accounts for a more sizable fraction of GDP.

Total R&D/GDP Ratios
The U.S. R&D/GDP ratio was about 2.7% in 2007 (table 4-11 ). At this level, the United States is eighth among the economies tracked by the OECD. Israel has the highest ratio at 4.7%, with Sweden, Finland, Japan, and South Korea all above 3%.

The R&D/GDP ratio in the United States has ranged from 1.4% in 1953 to a high of 2.9% in 1964 and has fluctuated in the range of 2.6% to 2.7% in recent years (figure 4-15 ). Most of the growth over time in the U.S. R&D/GDP ratio can be attributed to increases in nonfederal R&D spending, financed primarily by business. Non-federally financed R&D increased from about 0.6% of GDP in 1953 to 2.0% of GDP in 2007. This increase in the nonfederal R&D/GDP ratio reflects the growing role of business R&D in the national R&D system and, more broadly, the growing prominence of R&D-derived products and services in the national and global economies.

Historically, the many peaks and valleys in the U.S. R&D/GDP ratio reflect changing federal R&D priorities. The ratio's drop from its peak in 1964 largely resulted from federal cutbacks in defense and space R&D programs; from 1975 to 1979, gains in energy R&D activities kept the ratio stable. Beginning in the late 1980s, cuts in defense-related R&D kept growth in federal R&D spending below GDP growth, while nonfederal growth kept pace with or exceeded that of GDP. Since 2000, defense-related R&D spending has helped federal R&D spending growth outpace the growth of GDP.

Among other top 10 R&D-performing countries, total R&D/GDP ratios over the past 10 years show mixed trends (figure 4-16 ). Compared with 1996 R&D/GDP ratios, 2007 (or 2006) ratios were substantially higher in Japan, China, and South Korea; modestly higher for Germany and Canada; somewhat higher for Italy and the United Kingdom; and lower for France. Russia's R&D/GDP ratio grew consistently from the late 1990s but has fallen back to only somewhat above its 1996 level in recent years.

In addition to the United States, countries in Nordic and Western Europe and the most advanced areas of Asia have R&D/GDP ratios above 1.5%. This pattern broadly reflects the global distribution of wealth and level of economic development. Countries with high incomes tend to emphasize the production of high-technology goods and services and are also those that invest heavily in R&D activities. Private sectors in low-income countries often have a low concentration of high-technology industries, resulting in low overall R&D spending and, therefore, low R&D/GDP ratios.

Nondefense R&D and Basic Research
Further perspective is provided by the ratio of nondefense R&D expenditures to GDP. This ratio more directly measures civilian R&D intensity and is useful when comparing nations with substantially different financial commitments to national defense. Figure 4-16 shows the trends since the early 1980s in the nondefense R&D/GDP ratios for 7 of the top 10 R&D-performing nations (for which data are available). Although the U.S. ratio (2.3% in 2007) ranks ahead of that for the United Kingdom, it lags behind Japan, South Korea, and Germany.

Another perspective comes from the extent to which spending on basic research accounts for a country's total R&D/GDP ratio. Estimates of the relative volume of basic research spending can provide a glimpse of the extent to which R&D resources are directed toward advancing the scientific knowledge base.

Based on the most recent data available, the U.S. basic research/R&D ratio is about 0.5% and accounts for less than a fifth of the total R&D/GDP ratio (table 4-12 ). France's basic research ratio is slightly above the U.S. figure but accounts for nearly a quarter of its total ratio. South Korea's basic research ratio is close to the U.S. and French figures but accounts for less of the total ratio. The basic research ratios for Japan, Italy, and especially China are below the U.S. figure.

The following countries have basic research-to-GDP ratios at or above the U.S. level: Switzerland (0.83%), Israel (0.78%), Singapore (0.48%), Australia (0.45%), and Denmark (0.44%).


R&D by Performing Sector and Source of Funds

In all top 10 countries ranked by R&D expenditures, the business sector is currently the largest performer, ranging from 77% for South Korea and Japan to 49% for Italy (table 4-13 ). Countries with relatively lower business-sector R&D tend to have greater higher education R&D; these countries include Canada, Italy, the United Kingdom, and France. The government sector is particularly prominent in the Russian Federation, Italy, China, and France.

China's business R&D sector has spurred much recent growth in national R&D expenditures, which rose from 60% of the total in 2000 to 72% in 2007. This increase reflects activities by private domestic companies and by multinational companies as well as the conversion of government-owned enterprises to the private sector.

With respect to R&D funding, the business sector supplies 66% of total R&D funds in the United States (table 4-14 ). In Japan and South Korea, the business sector supplies higher fractions of the total R&D funding than in the United States. Germany's and China's business sectors provide funding shares broadly similar to that of the United States. In France, Canada, the United Kingdom, Italy, and the Russian Federation, the business sector provides smaller shares of total R&D funding, but the government shares are relatively high. Government support for R&D is particularly low in Japan.

More precise analysis is impeded by the lack of comparable data for foreign-funded R&D in the United States (figure 4-17 ). Russia, the United Kingdom, and Canada had the strongest growth in foreign R&D funds during the 1990s but have recently experienced sharp drops. Foreign R&D funding largely comes from foreign companies but also includes resources from foreign governments and other overseas organizations. For European countries, growth in foreign-funded R&D may reflect coordinated European Community (EC) efforts to foster cooperative shared-cost research through its European Framework Programmes.

Businesses in the United States also receive R&D funding from abroad. However, this funding is not separately reported in U.S. R&D statistics; instead, it is included in the figures reported for the business sector.[32]


Business Sector

The structure of business R&D varies substantially among countries in terms of both sector concentration and sources of funding. Because businesses account for the largest share of total R&D performance in the United States and most OECD countries, differences in business 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 pharmaceuticals or automotive manufacturing) are likely to also have higher R&D/GDP ratios than countries whose business structures are weighted more heavily toward less R&D-intensive industries.

Sector Focus for the United States and OECD Countries
Using internationally comparable data, no one industry accounted for more than 18% of total business R&D in the United States in 2007 (figure 4-18 ; appendix table 4-31 ) (OECD 2009c). This circumstance stems largely from the fact that total business R&D expenditures are so large in the United States that it is difficult for any one sector to dominate. However, the diversity of R&D investment by industry in the United States is also an indicator of how the nation's accumulated stock of knowledge and well-developed S&T infrastructure have made it a popular location for R&D performance for a broad range of industries.[33]

Compared with the United States, many of the other countries shown in figure 4-18 display much higher industry sector concentrations. In countries with less business R&D, high sector concentrations can result from the activities of one or two large companies. This pattern is notable in Finland, where the communication, television, and radio equipment industry accounted for more than half of business R&D in 2007. This high concentration most likely reflects the activities of one company, Nokia, a major manufacturer of mobile phones at the forefront of the convergence of communications and the Internet. In contrast, South Korea's high concentration of R&D (48% of all business R&D in 2006) in this industry is not the result of any one or two companies, but reflects the structure of its export-oriented economy. South Korea is one of the world's top producers of electronic goods, and among its top export commodities are semiconductors, cellular phones, and computers. In the United States, the communication, television, and radio equipment industry accounted for 11% of all business R&D in 2007.

Other industries also exhibit relatively high concentrations of R&D by country. Automotive manufacturers ranked among the largest R&D-performing companies in the world in 2006. (See table 4-15 and sidebar "Global R&D Expenses of Public Corporations.") Hence, countries that are home to the world's major automakers also boast the highest concentration of R&D in the automotive manufacturing industry. This industry accounts for 30% of Germany's business R&D, 23% of the Czech Republic's, and 19% of Sweden's (figure 4-18 ), reflecting the operations of automakers such as Daimler AG and Volkswagen in Germany, Skoda in the Czech Republic, and Volvo and Saab in Sweden. Also home to large R&D-performing firms in this industry are France (18% of all business R&D; PSA Peugeot Citroën, Renault), Japan (17%; Toyota, Honda, Nissan), South Korea (15%; Hyundai, Kia), and Italy (12%; Fiat). In the United States, the automotive manufacturing industry accounted for 6% of all business R&D in 2007.

The pharmaceuticals industry is less geographically concentrated than the automotive manufacturing industry but is still prominent in several countries. The pharmaceuticals industry accounts for more than 27% of business R&D in Denmark and the United Kingdom, and more than 20% in Belgium and Ireland. 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 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, which manufacturers medicines and vaccines for the World Health Organization's three priority diseases—HIV/AIDS, tuberculosis, and malaria. GlaxoSmithKline was the third-largest pharmaceuticals company in the world in terms of R&D expenditures in 2005 and 2006 (table 4-15 ). In the United States, the pharmaceuticals industry accounted for 18% of all business R&D in 2007. U.S.-headquartered pharmaceutical companies include Abbott Laboratories, Bristol-Myers Squibb, Eli Lilly, Johnson & Johnson, Merck, Pfizer, Schering-Plough, and Wyeth.

The computers, office and accounting machines industry represents only a small share of business R&D in most countries. Among the OECD countries shown in figure 4-18 and appendix table 4-31 , only Japan reports a double-digit concentration of business R&D in this industry, 13% (2006). Japan is the home of Fujitsu, Hitachi, and NEC. In the United States, the computers, office and accounting machines industry accounted for 3% of all business R&D in 2007. The United States is home to Apple, Dell, Hewlett-Packard, Sun Microsystems and other companies in this industry.

A significant trend in both U.S. and international business R&D activity has been the growth of R&D in the service sector. According to national statistics for recent years, the service sector accounted for 30% or more of all business R&D in 9 of the 19 OECD countries shown in figure 4-18 and less than 10% in only 4 of the countries. In the United States, service industries accounted for 30% of all business R&D in 2007.

Other Countries
Internationally comparable data for seven non-OECD countries have recently been made available in OECD's Analytical Business Enterprise R&D (ANBERD) database (OECD 2009c). Percentage shares of total business R&D by industry for Chile, China, Israel, the Russian Federation, Singapore, South Africa, and Taiwan are detailed in appendix table 4-31 .

Among these countries, the new data show that the communication, television, and radio equipment industry accounts for more than 40% of all business R&D in Singapore and Taiwan and more than 15% in Israel and China. Motor vehicle and pharmaceutical R&D account for smaller percentages of business R&D than in most of the OECD countries. Motor vehicle R&D accounts for 5% or more of business R&D in South Africa and China, and the two countries with the highest percentages of pharmaceutical R&D are Singapore (8%) and China (4%). R&D in the computer, office and accounting machines industry accounts for 15% of the business R&D performed in Taiwan, the highest percentage among the seven nations.

Among the OECD countries shown in figure 4-18 , the service sector accounts for as little as 7% of business R&D in South Korea to as much as 41% in Australia. The newly available data show a similar range among the seven nations. The percentage of business R&D accounted for by the service sector ranges from 7% in China to more than 60% in Israel and the Russian Federation.


Academic Sector

The academic sector's share of R&D is largest in Canada, where it accounted for 36% of national R&D performance in 2007 (table 4-13 ). It is lowest in the Russian Federation at 6%. The academic share in the United States and Japan is in the middle at 13%, whereas China is 9%.

Source of Funds
For most countries, the government is (and has long been) the largest source of academic research funding. (See sidebar "Government Funding Mechanisms for Academic Research.") Business support for academic R&D has increased over the past 25 years among the OECD countries as a whole. It was around 3% in the early 1980s, nearly 6% in 1990, and almost 7% in 2000 but then fell back to around 6% in 2006.

In the United States, business support for academic R&D was about 4% in the early 1980s and rose to about 7% later in that decade and through the 1990s but has dropped under 6% since 2000. Some commentators note with concern this recent trend of decline, in light of the significant role that academic basic research plays in providing a foundation for technological innovation important to the national economy.

The proportion of academic R&D financed by business is more varied among the other top R&D-performing countries (figure 4-19 ). The highest figures for business support of academic R&D are currently in China (35%) and Russia (31%). The figures are also high in Germany (14%) and South Korea (14%), whereas Japan, France, and Italy occupy the low end, with figures in the 1% to 3% range.

S&E Fields
Many countries that support a substantial level of academic R&D devote proportionately more of their R&D spending to engineering and social science than does the United States (table 4-16 ). The thrust of U.S. academic R&D support is more directed at the natural and medical sciences. (For a more detailed discussion of S&E field patterns of academic research in the United States and other countries, see chapter 5, "Outputs of S&E Research.")


Government R&D Priorities

Public R&D budget directed toward specific socioeconomic objectives gives insight into government priorities. Statistics compiled by the OECD on annual government budget appropriations or outlays for R&D (GBAORD) for its members and selected other countries provide a basis for such a comparison (table 4-17 ).

Defense is an objective for government funding of R&D for all the top R&D-performing countries, but the share varies widely. Defense accounted for 58% of U.S. federal R&D support in 2007 but was markedly lower elsewhere: a smaller but still significant 29% in France and 28% in the United Kingdom, 17% in South Korea, and below 10% in both Germany and Japan.

Defense has remained the focus of more than 50% of the federal R&D budget in the United States for much of the past 25 years. It was 63% in 1990 as the long Cold War period drew to a close. It dropped to 52% in 2000 but has risen again in the wake of events stemming from September 11, 2001. The defense share of government R&D funding for the other countries over the past 25 years has generally declined or remained at a stable, low level.

The health and environment objective now accounts for 55% of nondefense federal R&D budget support in the United States and 26% in the United Kingdom. For both countries, the share has expanded dramatically over the prevailing levels several decades ago. The health and environment share is currently 17% in South Korea, 13% in France, and 10% or less in Germany and Japan. The funding under this objective goes primarily into the health arena in the United States and the United Kingdom. In the other countries, it is more balanced between health and the environment.

The economic development objective encompasses agriculture, fisheries and forestry, industry, infrastructure, and energy. The share of nondefense government R&D support allocated to economic development has generally declined over the past 25 years across the OECD countries. In the United States, it was 36% of all nondefense federal support for R&D in 1981, dropping to 10% in 2007.[34] In the United Kingdom, it was 39% in 1981, declining to 7% in 2006. Despite a decline, support for this objective remains substantial in some countries: 22% in Germany and France (both with particular attention to industrial production and technology) and 31% in Japan (notably in energy and industrial production and technology). South Korea currently has by far the largest share for this objective, 52%, with a particularly strong emphasis in recent years on industrial production and technology.

The civil space objective accounts for 18% of nondefense federal R&D funding in the United States. The share has been around 20% in the United States for much of the past 25 years. The share in France is currently about 13%—and has been around that level for almost 20 years. The share has been below 10% for the rest of the OECD countries.

The other purposes objective includes the general advance of knowledge (university research and nonoriented government research), education, and other activities directed toward cultural and socioeconomic system purposes. This objective accounts for 17% of nondefense federal R&D funding in the United States (table 4-17 ). The share is substantially greater elsewhere: 64% in Germany and the United Kingdom, 55% in Japan, and 52% in France. For all OECD countries, university research and nonoriented government research constitute the vast majority of the funding under this objective.

Notes

[32] Accordingly, the business share of R&D funding for the United States in table 4-14 is overstated—specifically in comparison with the business-sector shares for countries where foreign sources of R&D funding are reported separately from domestic sources. R&D investments by foreign MNCs (discussed later in this chapter) provide an indication of international participation in U.S. business R&D. However, foreign ownership does not necessarily imply foreign funding, given that an affiliate may fund activities through domestic sources.
[33] For discussions of R&D diversity measurement, see Archibugi and Pianta (1992, 1996).
[34] Some analysts argue that the low nondefense GBAORD share for economic development in the United States reflects the expectation that businesses will finance industrial R&D activities with their own funds. Moreover, government R&D that may be useful to industry is often funded with other purposes in mind, such as defense and space, and is therefore classified under other socioeconomic objectives.
 

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

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