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

Highlights

Trends in U.S. R&D Performance

The total of U.S. research and development performance returned to current dollar growth in 2010 and 2011. On a constant dollar basis, however, U.S. total R&D in 2011 remains slightly below that for 2008, and the 2009 and 2010 levels are noticeably below the 2008 level.

  • Overall R&D performed in the United States totaled $406.7 billion (current dollars) in 2010, roughly the same as the 2009 level of $404.7 billion. U.S. R&D in 2011 totaled $424.4 billion, an increase of $17.7 billion.
  • This growth in U.S. R&D expenditures in 2011 followed a 2-year period of stagnation (2009 and 2010). This resulted chiefly from a drop in business R&D in the face of the national and international financial crisis and economic downturn that started in late 2008.
  • This seeming return to growth in 2011 is less apparent, however, when the U.S. R&D data are adjusted for inflation. On a constant dollar basis, the U.S. total R&D in 2011 is essentially equal to the 2008 level.

The business sector continues to account for most of U.S. R&D performance and U.S. R&D funding.

  • The business sector performed $294 billion of R&D in 2011, or 69% of the U.S. total, drawing on business, federal sources, and other sources of R&D support. The business sector itself provided $267 billion of funding for R&D in 2011, or 63% of the U.S. total, most all of which supported R&D performed by business.
  • Even with the declining levels of R&D expenditures in both 2009 and 2010, business R&D performance has accounted for most of the nation’s R&D growth over the last 5 years.
  • The academic sector is the second-largest performer of U.S. R&D, accounting for an estimated $63 billion in 2011, or about 15% of the national total.
  • The federal government is the second-largest funder of U.S. R&D, accounting for an estimated $126 billion, or 30% of U.S. total R&D performance in 2011.

Most of U.S. basic research is conducted at universities and colleges and funded by the federal government. However, the largest share of U.S. total R&D is development, which is largely performed by the business sector. The business sector also performs the majority of applied research.

  • In 2011, basic research was about 18% ($75 billion) of total U.S. R&D performance, applied research was about 19% ($82 billion), and development was about 63% ($267 billion).
  • Universities and colleges historically have been the main performers of U.S. basic research, and they accounted for about 55% of all U.S. basic research in 2011. The federal government remains the primary source of basic research funding, accounting for about 55% of all such funding in 2011.
  • The business sector is the predominant performer of applied research, accounting for 57% of all U.S. applied research in 2011. Business is also the largest source of funding for applied research, providing 53% in 2011.
  • Development is by far the largest component of U.S. R&D. Funding for development comes primarily from the business sector (78% in 2011); nearly all of the rest comes from the federal government.

International Comparisons of R&D Performance

The top three R&D-performing countries—United States, China, and Japan—accounted for over half of the estimated $1.435 trillion in global R&D in 2011.

  • The United States, the largest single R&D-performing country, accounted for just under 30% of the 2011 global total, down from 37% in 2001.
  • The economies of East/Southeast and South Asia—including China, India, Japan, Malaysia, Singapore, South Korea, and Taiwan—represented 25% of the global R&D total in 2001 but accounted for 34% in 2011. China (15%) and Japan (10%) were the largest R&D performers in this group.
  • The pace of real growth over the past 10 years in China’s overall R&D remains exceptionally high at about 18% annually, adjusted for inflation.
  • The European Union accounted for 22% total global R&D in 2011, down from 26% in 2001.

High-income countries, which tend to emphasize production of high-technology goods and services, devote larger shares of their GDP to R&D.

  • The U.S. R&D/gross domestic product (GDP) ratio (or R&D intensity) was just over 2.8% in 2011 and has fluctuated between 2.6% and 2.9% during the past 10 years, largely reflecting changes in business R&D spending.
  • In 2011, the United States ranked 10th in R&D intensity—surpassed by Israel, South Korea, Finland, Japan, Sweden, Denmark, Taiwan, Germany, and Switzerland. However, all of these economies performed much less R&D annually than the United States.
  • Among the top European R&D-performing countries, Germany reported a 2.9% R&D/GDP ratio in 2011, France reported 2.2%, and the United Kingdom reported 1.8%.
  • South Korea’s R&D/GDP ratio moved upward to 4.0% in 2011. Japan’s ratio was 3.4%. China’s ratio remains comparatively low, somewhat above 1.8%, but has more than doubled from just under 1.0% in 2001.

U.S. Business R&D

In 2011, business R&D performance reached $294 billion, a record in current dollars but still below the 2008 peak when measured in inflation-adjusted dollars.

  • Total U.S. business R&D performance increased from 2010 to 2011 by 5%. However, when measured in inflation-adjusted dollars, 2011 business R&D performance of $259.4 billion is still below the 2008 peak of $267.7 billion, at the beginning of the most recent recession.
  • Funding from business and other nonfederal sources increased 5.1% in constant dollars in 2011, the first such increase since 2008. On the other hand, federally funded business R&D as reported by performers dropped 10% in constant dollars in 2011 after a 15% decline in 2010.

R&D by Multinational Companies

The majority of R&D by U.S. multinational companies (MNCs) is still performed in the United States (84.1% of their $252 billion in R&D globally in 2010). Europe hosts the largest expenditures of R&D performed by majority-owned foreign affiliates (MOFAs) of U.S. MNCs, but affiliates in other regions, especially in Asia, are increasing their shares.

  • Parent companies of U.S. MNCs performed $212.5 billion of R&D in the United States, according to preliminary 2010 data. Their MOFAs performed $39.5 billion, so that U.S. MNCs as a whole performed $252.0 billion in R&D globally in 2010, up 2.2% from the $246.5 billion performed in 2009.
  • European host countries accounted for 62% of U.S. MOFA R&D in 2010. Asia-Pacific was the second-largest host region for U.S. MOFA R&D with 21.1%, including 4.8% in Japan and a record high of 16.3% in the rest of the region. The Middle East and Latin America each accounted for about 5% in 2010, up from 3.0% and 3.4%, respectively, in 2007.
  • Europe, Canada, and Japan have long hosted the majority of R&D by U.S. MOFAs. Seven of 13 countries with at least $1 billion in U.S. MOFA R&D in 2010 are in Europe. However, rapid growth in reported R&D by U.S. MOFAs in China, India, Brazil, and Israel has put these locations in the billion-dollar-plus category.
  • U.S.-owned MOFA R&D in China more than doubled from 2005 to 2008, with year-to-year double-digit increases to a record $1.7 billion in 2008, although it declined to $1.5 billion by 2010. U.S. MOFA R&D tripled in India and more than doubled in Brazil from 2007 to 2010, growing much faster than U.S. MOFA production activity in those countries, according to preliminary 2010 statistics. Brazil’s and India’s U.S. MOFA R&D expenditures are now on par with affiliates in China.

Federal R&D Performance and Funding

Federal spending on R&D increased annually on both current and constant dollar bases from the late 1990s through FY 2010. Funding dropped in FY 2011, which was a noticeable departure from the recent trend.

  • Federal obligations for the total of R&D and R&D plant were $136 billion in FY 2011 ($132 billion for R&D and an additional $4 billion for R&D plant). The corresponding data for FYs 2009 and 2010 were higher: $145 billion and $147 billion, respectively.
  • Defense continues to account for more than half of annual federal R&D spending. Health-related R&D accounts for the majority of federal nondefense R&D. Over the last two decades, the greatest change in federal R&D priorities has been the rise in health-related R&D.
  • Fifteen federal departments and 12 other agencies engage in and/or fund R&D in the United States. Nine of these departments/agencies reported R&D spending in FY 2011 in excess of $1 billion, and the nine together accounted for 97% of all federal obligations for R&D that year: the Departments of Agriculture, Commerce, Defense, Energy, Health and Human Services, Homeland Security, and Transportation; the National Science Foundation; and the National Aeronautics and Space Administration.

Federal Programs to Promote Technology Transfer and the Commercialization of Federal R&D

The federal government has been active since the early 1980s in establishing policies and programs to better transfer and economically exploit the results of federally funded R&D.

  • The latest statistics suggest that the federal departments/agencies accounting for the largest portion of federal R&D continue to be active in their use of the technology transfer authorities provided by the Technology Innovation Act of 1980 (Stevenson-Wydler Act) and subsequent legislation.
  • The levels of funding going to small, entrepreneurial companies engaged in R&D with eventual commercialization objectives, through the Small Business Innovation Research and Small Business Technology Transfer programs, are now vastly larger than when these programs were first initiated in, respectively, the early 1980s and the mid-1990s.
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