Knowledge- and technology-intensive (KTI) industries represent a growing portion of global S&T economic activity. KTI industries accounted for 27% of world gross domestic product (GDP) in 2012. They consist of high-technology (HT) manufacturing (e.g., aircraft and spacecraft; pharmaceuticals) and knowledge-intensive (KI) services (e.g., commercial business, financial, and communication services). These industries play a larger role in the United States than in the economy of any other large developed country, accounting for 40% of U.S. GDP.[1] KTI concentrations were in the range of 29%–30% for other large, developed regional and national economies (European Union [EU; see “Glossary” for member countries], Canada, Japan, and South Korea). The trend since 1999 indicates that, except for Japan between 2005 and 2012, the KTI share for all of these economies has been rising (figure
The KTI share of the world’s developed economies grew from 29% to 32% between 1997 and 2012. This was due mostly to increases in commercial and public (education and health) KI services, indicating a continuing movement away from manufacturing and toward services in these economies.
In recent years, regional and national shares of worldwide KTI production have been shifting. Regionally, the shift has produced a growing concentration of commercial KTI economic activity in East and Southeast Asia.[2] That region is approaching a concentration of commercial KTI activity comparable to that of the world’s established regional centers, North America and Western Europe.
Likewise, an increasing amount of worldwide KTI production is occurring in the developing world. To a large extent, this is due to China’s large modernizing economy. Economic growth in other Asian locations, however, has contributed as well, and KTI economic activity is also growing in countries such as Brazil, Turkey, and South Africa (figure
The growth of KTI activity in the developing world is most apparent in manufacturing and is largely due to China. Between 2003 and 2012, China’s HT manufacturing rose more than fivefold, resulting in its global share climbing from 8% to 24% in 2012. Even amid this shift, the United States remains the largest global provider of HT manufacturing (27% of the global total) (figure
KI services, despite growth in worldwide production attributed to developing countries, remain concentrated in developed countries. The United States is the world’s largest provider of commercial KI services (32%), followed by the EU (23%). China’s commercial KI services account for 8% of the world total, much more than any other developing country. China is tied with Japan as the third-largest global provider of these services. The share of developed countries in worldwide production of commercial KI services fell from 90% in 2003 to 79% in 2012, due entirely to a collective 15 percentage point decline in the global shares of the United States, the EU, and Japan (figure
The value added of commercial KI services in developed economies grew between 2003 and 2008. Due to the international economic downturn, however, these services then contracted before resuming growth in 2010. In the United States, commercial KI services’ value added rebounded after 2009 and, in 2012, stood 12% higher than its level prior to the global recession. The EU fared much worse. The EU’s production of commercial KI services remained stagnant between 2009 and 2012 and was below its pre-recession peak at the end of this period. As a result, following the international economic downturn, the EU’s global share in these KI services industries declined considerably. In contrast, the U.S. global share not only remained steady, but employment in commercial KI services in the United States rose above levels prior to the global downturn. At the same time, commercial KI services in developing countries, and especially in China, grew rapidly.
As the distribution of commercial KTI production gradually shifted from developed to developing countries during the international economic downturn, parallel changes occurred in trade in KTI goods and services. The developed world generally lost market share in global KTI exports during this period. Japan, for example, suffered marked declines in global market share, as did the EU. But some large European economies, notably Germany and the United Kingdom (UK), fared better than other parts of the EU. The United States was more successful in maintaining its position in global KTI competition than most other long-established developed economies.
R&D expenditures increase human and knowledge capital, laying the groundwork for innovations, including those that fuel KTI industries. In 2011, the proportion of global R&D performance attributable to the East and Southeast Asia region, including China, was comparable (31.8%) to that in North America (32.2%) and substantially larger than that in Europe (24.0%) (figure
Among individual countries, the United States is by far the largest investor in R&D. In absolute terms, the top three R&D performing countries—the United States ($429 billion), China ($208 billion), and Japan ($147 billion)—accounted for over half of the estimated $1.44 trillion in global R&D in 2011. The U.S. share was 30% of the global total in 2011. China (15%) and Japan (10%) were the next-largest R&D performers. The total for the EU was 22% (figure
Despite growth in nominal measures of R&D, both the United States and the EU experienced substantial declines in the last decade in their shares of global R&D. Between 2001 and 2011, the U.S. share declined from 37% to 30% of the global total, while the EU share dropped from 26% to 22%. During the same period, the economies of East and Southeast Asia and South Asia—including China, India, Japan, Malaysia, Singapore, South Korea, and Taiwan—saw an increase in their combined share from 25% to 34% of the global total. The pace of growth over the past 10 years in China’s overall R&D remains exceptionally high at about 18% annually adjusted for inflation, propelling it to 14.5% of the global total in 2011, up from 2.2% in 2000.
Although the United States performs far more R&D than any other individual country, several other economies have greater R&D intensity—that is, a higher ratio of R&D expenditures to GDP. In 2011, R&D intensity in the United States was 2.8%. Most economies with higher R&D intensity—including Israel, Finland, South Korea, Sweden, Denmark, Taiwan, and Switzerland—tend to be much smaller than the United States. More apt comparisons are with Germany, France, the UK, and Japan, which allocated, respectively, 2.9%, 2.2%, 1.8%, and 3.4% of GDP to R&D. However, relatively high R&D investments alone are no guarantee of robust economic growth, as indicated by the experience of Japan during the last decade.
Moreover, in several countries, R&D intensity has been growing rapidly (figure
At the same time that the growth of KI economies around the world intensifies the competition among national economies, it also increases interdependencies. Taking advantage of improved worldwide capacity to perform R&D and other knowledge-oriented economic activities, multinational corporations (MNCs) have increasingly made R&D investments outside their home countries. To be sure, the bulk of R&D by U.S. MNCs is still performed in the United States (84% of their $252 billion in R&D globally in 2010) and in Europe. But rapid growth in R&D by majority-owned foreign affiliates (MOFAs) of U.S. MNCs in China, India, Brazil, and Israel is closing the gap between these emerging countries and traditional centers of U.S. MOFA investments in Europe, Canada, and Japan.
Notably, U.S. MOFA R&D performance in China more than doubled in current dollars from 2005 to 2008, with year-to-year, double-digit increases to a record $1.7 billion in 2008. This is consistent with increases in total R&D performed in China in recent years and with China’s emergence as the second-largest R&D-performing country. Reported R&D activity by U.S. MOFAs tripled in India and more than doubled in Brazil from 2007 to 2010. U.S. MOFA R&D expenditures in Brazil and India are now on par with those in China.
Concurrently, affiliates of foreign MNCs located in the United States (U.S. affiliates) performed $41.3 billion of R&D in 2010, a slight increase after almost no change in 2009 and 2008. R&D by these companies has accounted for 14%–15% of U.S. business R&D performance since 2007. Three-fourths of R&D by U.S. affiliates of foreign MNCs in 2010 was performed by firms owned by parent companies based in five countries: Switzerland (22.0%), the UK (14.5%), Germany (13.8%), France (12.7%), and Japan (12.4%).
In addition to lowering R&D labor costs, MNCs’ overseas R&D investments bring development work closer to emerging markets and enable product designers to take advantage of proximity to consumers and better information about whether and how consumers are likely to use new products. These investments, often encouraged by governments in developing countries, also increase local capacity for performing further R&D work (Thursby and Thursby 2006).
The presence of workers with S&E skills is one of the key indicators of national competitiveness. Comprehensive, internationally comparable data on the worldwide S&E workforce do not exist. However, the Organisation for Economic Co-operation and Development (OECD) reports international data on professionals engaged in research. Although national differences in these data may be affected by survey procedures and interpretations of international statistical standards, the data can be used to make broad comparisons of national trends.
The United States continues to enjoy a distinct but decreasing advantage in the supply of human capital for research and other work involving S&E. In absolute numbers, the United States had one of the largest populations of researchers at the latest count, but China—which almost tripled its number since the mid-1990s—has been catching up (figure
There is no doubt that the worldwide total of workers engaged in research has been growing strongly and that growth has been more robust in some countries than in others. The most rapid expansion has occurred in South Korea (which doubled its number of researchers between 1995 and 2006 and continued to grow strongly thereafter) and China (which reported tripling its number of researchers between 1995 and 2008 and likewise reported substantial growth in later years).[4] The United States and the EU experienced steady growth at lower rates, with a 36% increase in the United States between 1995 and 2007 (OECD data for the United States are not available after 2007) and a 65% increase in the EU between 1995 and 2010. Exceptions to the worldwide trend between 1995 and 2011 were the numbers of researchers in Japan (which remained flat) and in Russia (which declined).
Researchers measured as a share of employment is another indicator of national competitiveness in an international knowledge economy. Several economies in Asia have shown a sustained increase in that statistic since 1995. Foremost among them is South Korea (figure
Data on recipients of higher education degrees also indicate that other countries are catching up to—and, in some respects, surpassing—the United States. Between 2001 and 2010, the number of first university degrees in the United States increased from 1.3 million to 1.7 million. During the same time period, the number of first university degrees in China grew from 0.5 million to 2.6 million. The rates of growth in the EU and in Japan, South Korea, and Taiwan were comparable to that in the United States (figure
S&E degrees, important for an innovative knowledge economy, are more prevalent in some countries than others. Globally, the number of first university degrees in S&E reached about 5.5 million in 2010. Almost a quarter of those degrees were conferred in China (24%), 17% in the EU, and 10% in the United States. In several Asian countries, these degrees comprise a larger proportion of all first university degrees than they do in the United States. Differences in engineering are especially large: whereas 5% of all bachelor’s degrees awarded in the United States were in engineering, 31% of such degrees in China were in this field.
The S&E proportion of all first university degrees in Western countries has typically been stable in recent years. From 2001 to 2010, this share held steady in the United States (from 31.8% to 31.5%) and in Germany (from 37.3% to 37.6%). In contrast, this proportion decreased considerably in several Asian countries, such as China (from 72.5% to 49.8%), Japan (from 65.6% to 59.3%), and South Korea (from 45.2% to 40.1%) (figure
The relationship between degrees conferred in a country and future capabilities in its workforce is complicated by the fact that increasing numbers of students are receiving higher education outside their home countries. The United States remains the destination of choice for the largest number of internationally mobile students worldwide. In 2012, foreign graduate students in S&E fields (163,390) outnumbered foreign students pursuing S&E undergraduate degrees (116,640) in the United States. Other popular destinations for internationally mobile students are the UK, Australia, France, and Germany (figure
Whereas the U.S. share of internationally mobile students fell, the actual number of foreign undergraduate students entering the United States increased, rising by 18% between fall 2011 and fall 2012. Within the S&E fields, the largest increases occurred in engineering and the social sciences. The majority of foreign students studied in non-S&E fields. Foreign undergraduates in the United States predominantly originate from China, South Korea, and Saudi Arabia.
The number of foreign graduate students in the United States increased by 3% between fall 2011 and fall 2012. A much larger share of those students (nearly 6 out of 10) was enrolled in S&E fields as compared to undergraduate students (3 out of 10). This cohort of foreign graduate students chose somewhat different fields of study from earlier years: more studied mathematics, social sciences, and psychology, and fewer studied computer science, biological sciences, and engineering.
Refereed journal articles are a tangible and readily measured output of research activity. Despite the growth in research capability abroad, the United States continues to be the world leader in the publication of S&E articles when publications are measured at the individual country level. In 2011, the United States accounted for 26% of the world’s 828,000 articles.[6] Nonetheless, the U.S. share of the global total of refereed journal articles has been declining, dropping by 4 percentage points between 2001 and 2011. Similarly, shares for the EU and Japan fell from 35% to 31% and from 9% to 6%, respectively, between 2001 and 2011. This was due mainly to increased output of research articles in East and Southeast Asia and in developing countries, such as Brazil and India. China’s share of refereed journal articles grew the fastest among larger developing economies during this time period, almost quadrupling from 3% to 11% of the world total (figure
Citations to refereed journal articles are an oft-used indicator of the quality and impact of research output. Researchers based in the United States continue to set the bar with respect to the production of influential research results. Between 2002 and 2012, 1.6%–1.8% of U.S.-authored S&E articles have been among the world’s top 1% of cited articles, compared with 0.7%–0.9% of articles from the EU (figure
Citation data can also signal the extent of collaboration among researchers, both nationally and across borders. The trend toward more collaboration varies among S&E fields, research institutions, and countries. Citation patterns, like coauthorship patterns, are strongly influenced by cultural, geographic, and language ties. Thus, U.S. articles are disproportionately cited by Canadian and UK articles. In comparison, U.S. authors cite Chinese articles much less than suggested by the overall citation trends. Within Europe and Asia (with the exception of Japan), cross-national citation is common, with most country pairs in each continent surpassing the expected number of citations.[7]
U.S. articles are highly cited across all broad scientific fields. Citations for U.S. engineering articles exhibited a slight increase between 2002 and 2012, and citations declined slightly for chemistry and social sciences. EU articles are cited more than expected in physics and agriculture. China underperformed on this measure across all science fields, with the notable exceptions of computer science and geosciences, in which China overperformed.
In addition to the research findings in published articles, patents are an important output often produced by S&E research. Although patents do not necessarily become commercialized or lead to practical innovations—some are accumulated to provide a basis for legal action to discourage competitors from innovating, and others are simply deemed not to be commercially viable—patent grants and applications can sometimes lead to new or significantly improved products or processes or new methods of organizing productive activities.
The United States Patent and Trademark Office (USPTO) accepts applications from and grants patents to inventors worldwide. Trends in USPTO patenting activity indicate changes in inventive activity in different parts of the world (figure
The USPTO granted more than 250,000 patents in 2012, of which 120,000 were to U.S. inventors. This represents the highest number worldwide. Japan (51,000) and the EU (36,000) posted the next-highest numbers of successful patent applications to the USPTO. Although the absolute number of USPTO patents granted to U.S. inventors increased from 87,000 to 120,000 between 2003 and 2012, the U.S. share declined by 5 percentage points (from 53% to 48%) in this period. This likely signals increased technological capabilities abroad, which, in a globalized marketplace, underscore the need for patent protection in foreign countries. Developing countries received 9,000 patents (less than 4% of total patents), with China and India receiving the bulk of the relatively small number of patents granted to these countries.
Data on the numbers of patents granted provide no indication of patent quality. Triadic patents, in which inventors simultaneously seek patent protection in three of the world’s largest markets—the United States, the EU, and Japan—indicate patents expected to have high commercial value. In 2010, the number of these triadic patents was estimated to be about 49,000. The shares of the United States, the EU, and Japan stayed roughly equal (at around 30% each) during the period from 2000 to 2010. Although South Korea still produces far fewer patented inventions than the long-standing global leaders, the country made rapid and notable progress on this indicator in the last decade, doubling its filings from 2% to 4% of the global total (figure
Globally, there are indications that various economies receive the majority of their patent grants in certain technology areas (figure
KTI industries account for a large share of USPTO patent grants awarded to inventors in the United States. In 2011, HT manufacturers garnered 29,000 of the 58,000 patents granted to all U.S. manufacturing industries. U.S. commercial KI services industries accounted for 46% of the 43,000 patents issued to nonmanufacturing industries in 2011. Although HT manufacturing is a smaller part of the U.S. economy than KI services, the majority of inventions attributable to KTI industries occur on the manufacturing side.
In manufacturing, five of the six HT manufacturing industries—aircraft and spacecraft; communications; computers; pharmaceuticals; and testing, measuring, and control instruments—reported rates of product and process innovation that were at least double the manufacturing sector average. In KI services industries, software firms lead in incidence of innovation, with 69% of companies reporting the introduction of a new product or service, compared to the 9% average for all nonmanufacturing industries. Other KI services industries—such as computer systems design, data processing and hosting, and scientific R&D services—also report innovation at rates that are three to four times higher than the nonmanufacturing average.
Innovative activities and trade in intellectual property are strongly related. Intellectual property trade is measured by royalties and fees collected for licensing or franchising proprietary technologies. Although sometimes affected by different tax treatments, income from intellectual property broadly indicates which nations are producing intellectual products with commercial value. U.S. export income from royalties and fees has exhibited a strongly positive trend over the last decade (figure
