Geographic Distribution of Research and Development Spending

The economy has undergone major structural changes since the decades immediately following World War II, when an abundant supply of high-wage, low-skill manufacturing jobs was the backbone of U.S. prosperity. For example, the diminishing number of well-compensated employment opportunities for individuals who lack postsecondary education or technical skills has been widely reported and documented and has captured the attention of policymakers and politicians at all levels of government. All-out efforts have been launched on several fronts to ease the transition from an economy largely dependent on workers' physical contributions to one that will rely increasingly on their mental strengths and capabilities.

State-level officials have been at the forefront in the quest for long-term solutions to the serious problems associated with blue-collar worker displacement. Economic revitalization is at the top of their agendas, and they have undertaken an array of strategies designed to fill the void left by declining traditional manufacturing and agricultural industries that were once the major sources of livelihood for their states' residents. A popular, nearly universal approach has been to implement a number of programs and policies - many aimed at strengthening their states' research and education infrastructure - as inducements to high-technology businesses to locate in their jurisdictions. Recently compiled information on state-level initiatives shows a major boost in these activities in recent years. Before reviewing these data, it is important to examine the geographic distribution of U.S. R&D investment - including levels of spending by state and the research intensity of state economies - from a national perspective. Absolute levels of R&D performance are indicators not only of a state's current capacity to support S&T-based economic development but also, to a certain extent, of a state's near-term potential to build on its S&T base.

Leading States and Sector Performance Patterns

R&D is substantially concentrated in a small number of states, a solidly entrenched configuration created by past public and private sector choices that were influenced by multiple economic and scientific considerations. Therefore, this historic pattern of concentration is unlikely to change in the foreseeable future. (See figure 4-15.)

One-half of the $166 billion spent on R&D in the United States in 1993 was expended in six states - California, New York, Michigan, Massachusetts, New Jersey, and Pennsylvania. Add four more states - Maryland, Texas, Illinois, and Ohio - and the proportion jumps to two-thirds of the national total. In California alone, $34 billion, or one-fifth of all U.S. R&D funds, were spent. In each of the other nine leading states, R&D spending ranged between $6 billion and $11 billion. (See text table 4-8 and appendix table 4-27.) In contrast, the smallest 30 states collectively accounted for about $23 billion, or less than 15 percent of the R&D conducted nationwide in 1993.

In addition to geographic concentration, there is a high degree of stability among state rankings. For example, the 10 states with the highest R&D performance totals in 1993 were also at the top of the list in 1975. There have been changes in some of the rankings, but these tend to be minor and mainly among those ranked below the top five. For example, between 1989 and 1993, the order of the five leading states stayed the same, but Maryland rose from 10th to 7th and Texas fell from 6th to 8th.

Not coincidentally, states that are national leaders in total R&D performance also usually rank among the leading sites in industrial and academic R&D performance. (See appendix table 4-27.) Of the 10 states that lead in total R&D,

There is somewhat more variation in the distribution of Federal R&D performance. Although California ranks second, the other top spots were held by Maryland, the District of Columbia, and Virginia, ranking first, third, and fourth, respectively, in 1993. These positions reflect the concentration of Federal research facilities, such as NIH, in the Washington, D.C., metropolitan area. Alabama and Florida had the fifth and sixth-highest levels of Federal R&D expenditures in 1993. Undoubtedly, their strong showing in this category is attributable to the sizable presence of the space-related R&D programs conducted in those states.

Among the top 10 states, California had the largest absolute increase in total R&D spending between 1989 and 1993 - $2.8 billion. This increase occurred despite a $5.4 billion decline in Federal R&D support to firms that perform R&D in California, a major source of worker displacement in that state. The decline in Federal R&D support was more than offset by gains in the private sector. During this period, California firms' R&D spending of their own funds rose by more than $8 billion. Much of this increase probably occurred in Northern California, which is famous for its Silicon Valley and for leading the Nation in biotechnology research.

Similar to California, Texas - which experienced the smallest percentage and absolute increases in R&D spending between 1989 and 1993 - had a sizable decline ($1.2 billion) in Federal R&D support between 1989 and 1993. Unlike California, however, the increased industrial R&D investment in this state was not large enough to offset the decline.

Maryland had the highest percentage increase - 46 percent - in R&D dollars spent within its borders between 1989 and 1993. The gain was equally distributed between Federal and industrial performers - each rose about $1 billion dollars. One of the major factors driving this increase was the biotechnology industry. Proximity to NIH and other medical research facilities is a lure for many companies in this industry.

There is also stability among the states ranked 11th through 20th. Between 1989 and 1993, only one state was dropped and one state was added to the list. Missouri, which was ranked 14th in 1989, fell to 23rd in 1993, and Colorado moved up from 21st to 15th. Other changes involved Virginia (which rose from 16th to 13th) and Minnesota (from 17th to 14th). Among the states ranked 11th through 20th, Washington had the largest absolute increase and Colorado, the largest percentage increase, in the 1990s.

Research and Development Intensity of State Economies

Just as the ratio of R&D expenditures to GDP is used to gauge a country's commitment to R&D and measure the change in this commitment over time, the ratio of in-state R&D performance to gross state product (GSP) can be used to measure the research intensity of states' economic activity. Moreover, indicators that normalize for size of states' economies tend to facilitate more meaningful comparisons between states. For the United States, the R&D/GDP ratio was 2.6 percent in 1993. Twelve states and the District of Columbia had R&D/GSP ratios above the national average in that year. (See appendix table 4-28.)

Most states with relatively high R&D/GSP ratios are also among the leaders in terms of absolute levels of R&D expenditures. However, there are a few notable exceptions. For example, New Mexico - which ranks 17th in total R&D spending - has the highest R&D/GSP ratio. In 1993, it was 8.0 percent. New Mexico's research intensity is largely attributable to the considerable Federal support provided to the two FFRDCs located in the state.

Delaware is another state that is not among the largest in terms of R&D spending but that has a relatively high R&D/GDP ratio (4.9 percent in 1993). Delaware's high R&D/GSP ratio is a result of the chemical industry's comparatively large in-state R&D activities.

In contrast, California and New York, which lead the Nation in absolute dollars of total R&D performance, ranked only 7th and 19th, respectively, in terms of their economies' R&D intensity, with ratios of 4.3 percent and 2.2 percent, respectively. In 1993, there were 14 states with less than $500 million in R&D activity and R&D/GSP ratios under 1 percent. (See figure 4-15 and appendix table 4-28.)

State Cooperative Technology Programs

According to the most recent data, states spent a total of $385 million on Federal/State cooperative technology programs26 in 1994, 22 percent more than in the previous year (Coburn, 1995). (See text table 4-5.) These programs fall into a number of different categories, the largest of which consists of those that support the development or application of technologies to meet market or production needs. In 1994, a total of $127 million was allocated for such programs, including $105 million to support technology development projects conducted at university-industry technology centers. Lesser amounts - ranging from $5 to $12 million - were used to finance university-industry research partnerships, government-industry consortia, and equipment and facility access programs.

The starting point for comparison among states has usually focused on their educational institutions. For example, all 50 states have adopted initiatives to support and facilitate public-private cooperation to develop and apply new technologies. Other types of state cooperative programs include technology (seed and venture capital) financing ($102 million in 1994), related educational initiatives ($83 million), and industry problem solving ($60 million).

Every state except Nevada, Rhode Island, and West Virginia provides financial support for at least one cooperative technology program. In 1994, state funding levels ranged from a low of $80,000 in Mississippi to a high of $37 million in North Carolina. The latter provides support to centers devoted to microelectronics and biotechnology R&D and to its Research Triangle Institute and Alliance for Competitive Technologies. North Carolina added almost $12 million to its annual budget for cooperative technology programs between 1993 and 1994, a 46-percent increase.

In addition to North Carolina, 12 other states budgeted more than $10 million each for cooperative technology programs in 1994. (See figure 4-16.) These 13 states accounted for three-quarters of the 1994 total for all states. Included in this group were 6 of the 10 states with the highest absolute levels of R&D spending - Pennsylvania, Texas, Ohio, New York, New Jersey, and Michigan. The others are all in the top 20, with 2 exceptions: Georgia (which ranks 25th overall) and Kansas (36th). These two states also had relatively low R&D/GSP ratios, 1.0 percent and 0.8 percent, respectively, in 1993.

Among the 13 states that spent the largest sums on cooperative technology programs, financial support between 1993 and 1994 doubled in two states - Connecticut and Maryland; it rose between 40 and 100 percent in Georgia, North Carolina, and Michigan, and fell slightly in Texas and New Jersey. Also, between 1994 and 1995, New York's funding was expected to increase 60 percent and Virginia's was expected to fall 21 percent. In general, state S&T programs have weathered recession-driven budget cuts rather well, especially given the fiscal difficulties facing most states in recent years.

Experimental Program to Stimulate Competitive Research (EPSCoR)

NSF pioneered the Experimental Program to Stimulate Competitive Research (EPSCoR) concept in 1979. The program was established in response to congressional concern about the geographic concentration of Federal funding of academic R&D. Universities in states designated as EPSCoR states receive special, merit-based support aimed at strengthening their capability to compete successfully for Federal R&D funds. Since 1979, other Federal agencies have adopted their own EPSCoR programs with goals similar to those of NSF. In 1994, seven agencies spent a total of $65.7 million on EPSCoR programs, up from $56 million in 1993 and $46.4 million in 1992. NSF maintains the largest EPSCoR program, with expenditures totaling $31.9 million in 1994. (See text table 4-9.)


26 See footnote 13.