| Absolute
Levels of Total R&D Expenditures
Trends in Total R&D/GDP Ratios
Nondefense R&D Expenditures and R&D/GDP Ratios
International R&D by Performer, Source, and Character
of Work
Increasingly, the international competitiveness of a modern economy
is defined by its ability to generate, absorb, and commercialize
knowledge. Most nations have accepted that economic policy should
focus not only on improving quality and efficiency but also on promoting
innovation. Absolute levels of R&D expenditures are important
indicators of a nation's innovative capacity and are a harbinger
of future growth and productivity. Indeed, investments in the R&D
enterprise strengthen the technological base on which economic prosperity
increasingly depends worldwide. The relative strength of a particular
country's current and future economy and the specific scientific
and technological areas in which a country excels are further revealed
through comparison with other major R&D-performing countries.
This section compares international R&D spending patterns. Topics
include absolute and relative expenditure trends, the structure
of R&D performance and funding across sectors, the foci of R&D
activities within sectors, and government research-related priorities.
Most of the R&D data presented in this section are from reports
to the Organisation for Economic Co-operation and Development (OECD),
the most reliable source for such international comparisons. However,
an increasing number of non-OECD countries and organizations now
collect and publish internationally comparable R&D statistics,
which are reported at various points in this section.
Absolute Levels of Total R&D Expenditures 
Worldwide R&D performance is concentrated in a few industrialized
nations. Of the $603 billion in estimated 2000 R&D expenditures
for the 30 OECD countries, fully 85 percent is expended in only
7 countries (OECD 2002d).
These estimates are based on reported R&D investments (for defense
and civilian projects) converted to U.S. dollars with purchasing
power parity (PPP) exchange rates.
(See sidebar, "Purchasing Power Parities: Preferred
Exchange Rates for Converting International R&D Data.")
R&D expenditures in the United States alone account for roughly
44 percent of all OECD member countries' combined R&D investments;
R&D investments in the United States are 2.7 times greater than
investments made in Japan, the second largest R&D-performing
country. More money was spent on R&D activities in the United
States in 2000 than in the rest of the G-7 countries (Canada, France,
Germany, Italy, Japan, and the United Kingdom) combined. (See figure
4-22 
and appendix
table 4-43 
for inflation-adjusted PPP R&D totals for OECD and G-7 countries.)
South Korea is the only other country that accounted for a substantial
share of the OECD total (3.1 percent in 2000, which was higher than
expenditures in either Canada or Italy). In only four other countries
(the Netherlands, Australia, Sweden, and Spain) did R&D expenditures
exceed 1 percent of the OECD R&D total (OECD 2002d).
Although non-OECD countries also fund and perform R&D, most
of these national R&D efforts are comparatively small. In 2000,
for example, R&D expenditures in China and Russia totaled $50.3
and $10.6 billion (PPP dollars), respectively, and nondefense R&D
expenditures in Israel totaled $5.6 billion (PPP dollars) (OECD
2002d). Among non-OECD members of Red Iberomericana de Indicadores
de Ciencia y Tecnologia (RICYT), the largest R&D expenditures
are reported for Brazil ($4.6 billion in U.S. dollars at market
exchange rates in 1999), Argentina ($1.3 billion in 2000), Chile
($0.4 billion in 2000), and Colombia ($0.2 billion in 2000) (RICYT
2002). The combined R&D expenditures of these seven countries
(approximately $73 billion) would raise the OECD world total by
about 12 percent, and about two-thirds would be derived from China
alone.
In terms of relative shares, U.S. R&D expenditures in 1984
reached historical highs of 55 percent of the G-7 total and 47 percent
of the OECD total.
As a proportion of the G-7 total, U.S. R&D expenditures declined
steadily to a low of 48 percent in 1991 and then increased to 52
percent in 2000. (See figure
4-22
for actual expenditure totals.) The U.S. share of total OECD expenditures
for R&D has increased similarly. By 1994 the U.S. share had
dropped to 42 percent of the OECD R&D total, partly the result
of several countries joining OECD (thereby increasing the OECD R&D
totals). The U.S. share climbed back to 44 percent of the OECD total
by 2000 as a result of robust R&D growth in the United States.
Most of the increase in the U.S. percentage of total G-7 R&D
expenditures after the early 1990s initially resulted from a worldwide
slowing in R&D performance that was more pronounced in other
countries. Although U.S. R&D spending stagnated or declined
for several years in the early to mid-1990s, the reduction in real
R&D spending in most of the other large R&D-performing countries
was more striking. In Japan, Germany, and Italy, inflation-adjusted
R&D spending fell for 3 consecutive years (1992, 1993, and 1994)
at a rate exceeding the similarly falling rate in the United States
(OECD 2002d). In the late 1990s,
R&D spending rebounded in several G-7 countries and in the United
States. Because annual R&D growth was generally stronger in
the United States than elsewhere (figure
4-23 ),
however, the U.S. percentage of total G-7 R&D spending continued
to increase. Although the slowdown in the technology market in 2001
and 2002 has had a global reach, it remains to be seen whether the
sharp slowdown in U.S. R&D expenditures in 2001 and 2002 will
be as pronounced internationally.
Trends in Total R&D/GDP Ratios
One of the first and now one of the more widely used indicators
of a country's R&D intensity is the ratio of R&D spending
to GDP (Steelman 1947) (figure
4-25 ).
For many of the G-8 countries (that is, the G-7 countries plus Russia),
the latest R&D/GDP ratio is no higher now than it was at the
start of the 1990s, which ushered in a period of slow growth or
decline in their overall R&D efforts.
The United States and Japan reached 2.7 and 2.8 percent, respectively,
in 1990–91. As a result of reduced or level spending by industry
and government in both countries, the R&D/GDP ratios declined
several tenths of a percentage point, to 2.4 and 2.6, respectively,
in 1994 before rising again to 2.7 and 3.0 percent in 2000. Growth
in industrial R&D accounted for much of the recovery in each
of these countries. However, the steady increase in Japan's R&D/GDP
ratio in 1994–2000 is also partially a result of anemic economic
conditions overall: GDP fell in both 1998 and 1999 with only a marginal
increase in 2000, so that even level R&D spending resulted in
a slight increase in its R&D ratio (OECD
2002d).
Among the remaining six G-8 countries, three (Germany, Canada,
and Russia) display recent increases in their economy's R&D/GDP
ratio, and three (the United Kingdom, France, and Italy) report
an R&D/GDP ratio that has remained stable or has declined. In
Germany the R&D/GDP ratio fell from 2.8 percent at the end of
the 1980s, before reunification, to 2.3 percent in 1994 before rising
to 2.5 percent in 2001. Canada's R&D/GDP ratio also rose in
the late 1990s from 1.7 percent in 1996 to 1.9 percent in 2001.
The end of the cold war and collapse of the Soviet Union had a drastic
effect on Russia's R&D intensity. R&D spending in Russia
was estimated at 2.0 percent of GDP in 1990; that figure plummeted
to 1.4 percent in 1991 and then tumbled further to 0.7 percent in
1992. Moreover, the severity of this R&D decline is masked somewhat:
although the R&D share was falling, it also was a declining
share of a declining GDP. By 1999 the R&D/GDP ratio in Russia
had inched back to about 1.0 percent; it accelerated to 1.2 percent
in 2001 as R&D performance in the country grew by more than
30 percent in real terms over those 2 years. In comparison, the
R&D/GDP ratio slipped slightly in the United Kingdom in the
late 1990s to 1.9 percent in 2000. Between 1997 and 2001, the R&D/GDP
ratio fluctuated narrowly at 2.2 and 1.1 percent in France and Italy,
respectively. have different patterns of R&D spending. See "Industrial
Sector" for further discussion of such considerations.
Overall, the United States ranked fifth among OECD countries in
terms of reported R&D/GDP ratios (table
4-17  ).
Israel (not an OECD member country), devoting 4.4 percent of its
GDP to R&D, led all countries, followed by Sweden (3.8 percent),
Finland (3.4 percent), Japan (3.0 percent), and Iceland (2.9 percent).
In general, nations in Southern and Eastern Europe tend to have
R&D/GDP ratios below 1.5 percent, whereas Nordic nations and
those in Western Europe report R&D spending shares greater than
1.5 percent. In a broad sense, the reason for such patterns has
much to do with overall funding patterns and macroeconomic structures.
In practically all OECD countries, the business sector finances
most of the R&D. However, OECD countries with relatively low
R&D/GDP ratios tend to be relatively low-income countries, where
government funding tends to provide a larger proportion of the R&D
support than it provides in countries with high R&D/GDP ratios.
Furthermore, the private sector in low-income countries often has
a low concentration of high-technology industries, resulting in
low overall R&D spending and therefore low R&D/GDP ratios.
Indeed, a strong link exists between countries with high incomes
that emphasize the production of high-technology goods and services
and those that invest heavily in R&D activities (OECD 2000).
This highlights that R&D/GDP ratios are most useful when comparing
countries with national S&T systems of comparable maturity and
development.
Outside the European region, R&D spending has intensified considerably
since the early 1990s. Several Asian countries, most notably South
Korea and China, have been particularly aggressive in expanding
their support for R&D and S&T-based development. In Latin
America and the Pacific region, other non-OECD countries also have
attempted to increase R&D investments substantially during the
past several years. Even with recent gains, however, most non-European
(non-OECD) countries invest a smaller share of their economic output
in R&D than do OECD members (with the exception of Israel).
All Latin American countries for which such data are available report
R&D/GDP ratios below 1 percent (table
4-17 ).
This distribution is consistent with broader indicators of economic
growth and wealth. However, many of these countries also report
additional S&T-related expenditures on human resources training
and S&T infrastructure development that are not captured in
R&D or R&D/GDP data (RICYT 2002).
Nondefense R&D Expenditures and R&D/GDP
Ratios
Although the R&D intensities of many countries have changed
little over the past decade, there have been significant changes
in the composition of their R&D. One indicator of these changes
is the relative increase in nondefense R&D. Although defense-related
R&D does result in spillovers that produce social benefits,
nondefense R&D is more directly oriented toward national scientific
progress, standard-of-living improvements, economic competitiveness,
and commercialization of research results. Indeed, conclusions about
a country's relative standing may differ dramatically, depending
on whether total R&D expenditures include or exclude defense-related
expenditures; for some countries, the relative emphasis has shifted
over time. Among G-8 countries, the inclusion of defense-related
R&D has had little impact on R&D totals for Japan, Germany,
Italy, and Canada, where defense-related R&D represents 5 percent
or less of the national total. In other countries, defense has accounted
for a more significant proportion of the national R&D effort,
although this proportion has generally declined since the end of
the cold war. Between 1988 and 2000, the defense share of the R&D
total:
- Fell from 31 to 14 percent in the United States
- Fell from 19 to 8 percent in France
- Fell from 16 to 15 percent in the United Kingdom
- Accounted for approximately 24 percent of the Russian R&D
total in 2000
Consequently, if current trends persist, the distinction between
defense and nondefense R&D expenditures in international comparisons
may become less important. In absolute dollar terms, nondefense
R&D spending is still considerably larger in the United States
than in other countries. In 2000 (the latest year for which comparable
international R&D data are available for most OECD countries),
U.S. nondefense R&D was more than twice that of Japan's and
was equivalent to 97 percent of the non-U.S. G-7 countries' combined
nondefense R&D total (appendix
table 4-44 ).
In terms of R&D/GDP ratios, the relative position of the United
States is somewhat less favorable when only nondefense R&D is
included in the metric. Japan's nondefense R&D/GDP ratio (3.0
percent) exceeded the U.S. ratio (2.4 percent) in 2000, as it has
for years (figure 4-25
and appendix
table 4-44 ).
In 2001, Germany's nondefense R&D/GDP ratio (2.5 percent) slightly
exceeded the U.S. ratio (2.4 percent). The 2001 nondefense ratio
for France (2.0 percent) was slightly below the U.S. ratio. In 1999–2000,
ratios for the United Kingdom (1.6 percent in 2000), Canada (1.8
percent in 1999), and Italy (1.1 percent in 2000) were considerably
lower than U.S. ratios. In 2001 the nondefense R&D/GDP ratio
for Russia (0.9 percent) was less than half the U.S. ratio.
International R&D by Performer, Source,
and Character of Work
R&D performance patterns by sector are broadly similar across
countries, but national sources of support differ considerably.
In nearly all OECD countries, government has provided a declining
share of all R&D funding during the past 2 decades, and the
industrial share of R&D funding has increased considerably.
The emphases of industrial R&D efforts, however, differ across
countries, as do governmental R&D priorities and academic S&E
field research emphases, as described subsequently in this chapter.
Government and industry together account for roughly 80 percent
or more of the R&D funding in each of the G-8 countries, although
the respective contributions vary substantially across countries.
In recent years, the industrial sector provided more than 70 percent
of R&D funds in Japan, 68 percent in the United States, 66 percent
in Germany, 53 percent in France, 49 percent in the United Kingdom,
and 44 percent in Canada
(figure 4-26 ).
In Russia, industry provided approximately 34 percent of the nation's
R&D funding. Government provided the largest share of Russia's
R&D (57 percent), as it did in Italy in past years (more than
50 percent in 1999). In the remaining six countries, government
was the second largest source of R&D funding, ranging from 20
percent (in Japan) to 39 percent (in France) of the total. In each
of these eight countries, government provided the largest share
of the funds used for academic R&D performance (appendix
table 4-45 ).
The industrial sector dominates R&D performance in each of
the G-8 countries (figure
4-26 ).
Industry's share of R&D performance for the 2000–2001 period
ranged from 50 percent in Italy to a little more than 70 percent
in the United States, Japan, Germany, and Russia. During the same
period, industry's share was between 57 and 66 percent in Canada,
France, and the United Kingdom. Most of the industrial R&D in
these countries was funded by industry. Government's share of funding
for industrial R&D ranged from as little as 2 percent in Japan
and Canada to 49 percent in Russia (appendix
table 4-45 ).
In the other G-8 countries, government funded between 7 and 11 percent
of industrial R&D.
In all of the G-8 countries except Russia, the academic sector
was the second largest R&D performer (about 12 to 31 percent
of the performance total in each country).
Academia often is the primary location of research (as opposed to
R&D) activities, however. Government was the second largest
R&D performer in Russia (accounting for 24 percent of that nation's
R&D effort). Government also performed a larger proportion of
R&D in France, which operates some sizable government laboratories.
South Korea, with total R&D expenditures in excess of either
Canada or Italy, has R&D distributions by performing sector
and source of funds very similar to those of the United States.
Industry performed an even greater share of South Korea's R&D
(76 percent) than it did in any of the G-8 countries and was also
the largest source of R&D funding in South Korea (accounting
for 73 percent of all funding). The South Korean government provided
most of the remaining R&D funding (25 percent of all funding).
About 45 percent of government R&D funding in South Korea went
to government performers of R&D, with the remainder going primarily
to academic (29 percent) and industrial performers (25 percent).
Academic Sector
In many OECD countries, the academic sector is a distant second
to industry in terms of national R&D performance. Among G-8
countries, universities accounted for as little as 5 percent of
Russia's R&D total to more than 31 percent of Italy's.
Source of Funds. For most of these countries, the government
is now, and historically has been, the largest source of academic
research funding. However, in each of the G-8 countries for which
historical data exist (except Russia), the government's share has
declined during the past 20 years, and industry's share has increased.
Specifically, the government's share, including both direct government
support for academic R&D and the R&D component of block
grants to universities, has fallen by 8 percentage points or more
in five of the G-7 countries since 1981 (except in France and Italy,
where the government's share of academic R&D dipped by 6 and
2 percentage points, respectively).
In comparison, and as an indication of an overall pattern of increased
university-firm interactions (often intending to promote the commercialization
of university research), the proportion of academic R&D funded
by industry for these seven countries combined climbed from 2.6
percent of the academic R&D total in 1981 to 5.2 percent in
1990 and to 6.0 percent in 1999. In Germany, more than 11 percent
of university research was funded by industry in 2000 (table
4-18 ).
S&E Fields. Most countries supporting a substantial
level of academic R&D (at least $1 billion PPPs in 1999) devote
a larger proportion of their R&D to engineering, social sciences,
and humanities than does the United States
(table 4-19 ).
Conversely, the U.S. academic R&D effort emphasizes the medical
sciences and natural sciences relatively more than do many other
OECD countries.
The latter observation is consistent with the emphases in health
and biomedical sciences for which the United States (and in particular
NIH and U.S. pharmaceutical companies) is known.
Industrial Sector
Industrial firms account for the largest share of total R&D
performance in each of the G-8 countries. However, the purposes
to which the R&D is applied differ somewhat, depending on the
overall industrial composition of each country's economy. Funding
patterns for industrial R&D also differ from country to country,
with respect to both domestic sources of funds as well as the relative
proportion of foreign funding.
Sector Focus. The structure of a country's industrial activity
can be a major determinant of the level and change in industrial
R&D spending. National variations in such spending can result
from differences in absolute output, industrial structure, and R&D
intensity. Countries with the same size economy could have vastly
different R&D expenditure levels (and R&D/GDP ratios). Differences
might depend on the share of industrial output in the economy, as
illustrated in figure 4-27
for the G-8 countries, South Korea, and China. Highly aggregated
sector distributions can be deceiving, however, as some nations
have much higher concentrations of R&D-intensive industries
such as pharmaceutical manufacture as opposed to food processing.
And even individual firms in the same industries can devote substantial
resources to specific R&D activities in one country and to other
activities in another country. Table
4-20
shows recent distributions of industrial R&D performance in
the G-8 countries and South Korea, Sweden, Finland, and the European
Union.
The sector distribution of U.S. industrial R&D performance
is among the most widespread and diverse among OECD members. The
accumulated knowledge stock, well-developed S&T infrastructure,
and large domestic market in the United States have enabled it to
invest and become globally competitive in numerous industries rather
than just a few industries or niche technologies. In 2000 no U.S.
industrial sector accounted for more than the 13 percent of total
industrial R&D concentrated in the electronic equipment manufacturing
sector. In comparison, most of the other countries displayed somewhat
higher sector concentrations. For example, 20 percent or more of
industrial R&D was concentrated in electronic equipment manufacturing
in Finland (at 49 percent of its industry total), South Korea (37
percent), Canada (29 percent), and Sweden (23 percent). Indeed,
the electronic equipment sector was among the largest performers
of industrial R&D in 7 of the 11 countries shown and was the
second largest performer of industrial R&D for the entire European
Union. Among other manufacturing sectors, motor vehicles in Germany
and pharmaceuticals in the United Kingdom accounted for 20 percent
or more of total R&D performance, which was consistent with
general economic production patterns. [See OECD
(2001) for a harmonized historical series on industrial R&D
expenditures in several OECD countries.]
One of the more significant trends in both U.S. and international
industrial R&D activity has been the growth of R&D in the
service (nonmanufacturing) sector. According to the internationally
harmonized data in table 4-20
,
this sector accounted for 34 percent of total industrial R&D
performance in the United States in 2000.
A number of other countries also reported substantial increases
in their service sector R&D expenditures during the past 25
years. Among G-7 countries, nonmanufacturing shares of total industrial
R&D increased about 5 percentage points in France and Italy
and 13 percentage points in the United States, United Kingdom, and
Canada from the early 1980s to the late 1990s (Jankowski 2001).
In each of these three English-speaking countries, computer and
related services account for a substantial share of the service
R&D totals. (See sidebar, "R&D in the ICT
Sector.") Furthermore, the service sector appears to be an important
locus of industrial R&D activity in several countries, reflecting
in part the growth in outsourcing and greater reliance on contract
R&D in lieu of in-house performance, as well as intramural R&D
in these industries.
According to national statistics for recent years, the nonmanufacturing
sector accounted for less than 10 percent of total industrial R&D
performance in only three of the G-7 countries (Germany, France,
and Japan). Among the countries listed in table
4-20 ,
the service sector share ranged from as little as 2 percent in Japan
to 59 percent in Russia. The latter figure, however, primarily occurred
because specialized industrial research institutes perform a large
portion of Russia's industrial and governmental R&D and are
classified under "research and development" within the service sector.
Apart from these institutes, the manufacturing-nonmanufacturing
split in Russia's industrial R&D would be similar to ratios
in the United States [American Association for the Advancement of
Science and Centre for Science Research and Statistics (AAAS/CSRS)
2001].
Source of Funds. Most of the funding for industrial R&D
in each of the G-8 countries is provided by industry itself. As
is the situation for OECD countries overall, government financing
accounts for a small and declining share of total industrial R&D
performance within G-7 countries. (See "Government Sector.")
Government financing shares ranged from as little as 2 percent of
industrial R&D performance in Japan to 11 percent in Italy (appendix
table 4-45 ).
(For recent historical reasons, Russia was the exception to this
pattern among the G-8 countries, with government accounting for
49 percent of its industry total.) In the United States in 2001,
the Federal Government provided about 9 percent of the R&D funds
used by industry, and the majority of that funding was obtained
through DOD contracts.
Foreign sources of R&D funding increased in many countries
between 1981 and 2001 (figure
4-28 ).
The role of foreign funding in R&D varied from country to country,
accounting for as little as 0.4 percent of industrial R&D in
Japan to as much as 27 percent in Canada in recent years. This foreign
funding predominantly came from foreign corporations but also included
funding from foreign governments and other foreign organizations.
The growth of this funding primarily reflects the increasing globalization
of industrial R&D activities. For European countries, however,
the growth in foreign sources of R&D funds may also reflect
the expansion of coordinated European Community efforts to foster
cooperative shared-cost research through its European Framework
Programmes.
Although the growth pattern of foreign funding has seldom been smooth,
it accounted for more than 20 percent of industry's domestic performance
totals in Canada and the United Kingdom and almost 10 percent of
industrial R&D performed in France and Russia between 1981 and
2001 (figure 4-28 ).
Such funding takes on even greater importance in many of the smaller
OECD countries as well as in less industrialized countries (OECD
1999). The recent global slowdown in industrial R&D spending
may be reflected in a decline in foreign funding as a share of domestic
industrial R&D in the most recent years' data for Italy, the
United Kingdom, and Russia. Although data exist on foreign sources
of R&D funding for other countries, there are no data on foreign
funding sources of U.S. R&D performance. However, the importance
of international investment for U.S. R&D is highlighted by the
fact that approximately 13 percent of funds spent on industrial
R&D performance in 2000 were estimated to have come from majority-owned
affiliates of foreign firms investing domestically.
Government
Sector
As in the United States, in most countries the government sector
performs much less R&D than it funds. And, also as in the United
States, the role of the government as a performer of R&D has
been shrinking internationally. The government sector accounted
for 13 percent of the OECD R&D performance total as recently
as 1995. This share fell to 10 percent of OECD members' combined
R&D performance in 2000 (OECD 2002a) and equaled 24 percent
or (usually much) less in each of the G-8 countries (appendix
table 4-45 ).
Government R&D Funding Totals. A significant trend in
the G-7 and other OECD countries has been the decline in government
R&D funding relative to R&D funding from the private sector.
In 2000, less than 30 percent of all R&D funds were derived
from government sources, down considerably from the 44 percent share
reported in 1981
(figure 4-29 ).
Part of the relative decline reflects the effects of budgetary constraints,
economic pressures, and changing priorities in government funding
(especially the relative reduction in defense R&D in several
of the major R&D-performing countries, notably France, the United
Kingdom, and the United States). This trend also reflects the absolute
growth in industrial R&D funding as a response to increasing
international competitive pressures in the marketplace, irrespective
of government R&D spending patterns. Both of these considerations
are reflected in funding patterns for industrial R&D performance.
In 1982, government provided 23 percent of the funds used by industry
in conducting R&D within OECD countries, whereas by 2000 government's
share of the industrial R&D total had fallen by almost two-thirds,
to 8 percent of the total.
Government R&D Priorities. A breakdown of public expenditures
by major socioeconomic objectives provides insight into government
priorities that differ considerably across countries and shift over
time.
Within OECD, the defense share of governments' R&D financing
total declined annually from 44 percent in 1986 to 29 percent in
1999 (table 4-21 ).
Much of this decline was driven by the U.S. experience: 54 percent
of the U.S. Government's $98 billion R&D investment during 2002
was devoted to national defense, down from its 69 percent share
in 1986.
Concurrent with the changes in overall defense/nondefense R&D
shares, notable shifts occurred in the composition of OECD countries'
governmental nondefense R&D support during the past 2 decades.
In terms of the broad socioeconomic objectives to which government
programs are classified in various international reports (OECD
2001 and 2002g), government
R&D shares increased most for health and the environment and
for various nondirected R&D activities (identified in table
4-21
as other purposes).
Growth in health-related R&D financing was particularly strong
in the United States, whereas many of the other OECD countries reported
relatively higher growth in environmental research programs. Indeed,
as is indicated from a variety of R&D metrics, the emphasis
on health-related research is much more pronounced in the United
States than in other countries. In 2001 the Federal Government devoted
25 percent of its R&D investment to health-related R&D,
making such activities second in priority only to defense.
The relative shift in emphasizing nondirected R&D reflects
government priority setting during a period of fiscal austerity
and constraint. With fewer discretionary funds available to support
R&D, governments have tended to conduct activities that are
traditionally in the government sphere of responsibility and for
which private funding is less likely to be available. For example,
basic research projects are inextricably linked to higher education.
[See Kaiser et al. (1999) for a
description of recent efforts to make higher education R&D data
more internationally comparable.] Conversely, the relative share
of government R&D support for economic development programs
declined considerably from 38 percent in 1981 to 23 percent in 1999.
Economic development programs include the promotion of agriculture,
fisheries and forestry, industry, infrastructure, and energy, all
activities for which privately financed R&D is more likely to
be provided without public support, although the focus of such private
and public support would undoubtedly differ somewhat.
Differing R&D activities are emphasized in each country's governmental
R&D support statistics.
As noted above, defense accounts for a relatively smaller government
R&D share in most countries than in the United States. In recent
years, the defense share was relatively high in the United Kingdom,
Russia, and France at 46, 44, and 30 percent, respectively, but
was less than 12 percent each in Germany, Italy, Canada, and Japan.
South Korea expended 16 percent of its $6 billion government R&D
budget on defense-related activities (figure
4-32 ).
Japan committed 27 percent of its non-GUF governmental R&D support
to energy-related activities, reflecting the country's historical
concern about its high dependence on foreign sources of energy.
In Canada 14 percent of the government's non-GUF R&D funding
was directed toward agriculture. Space R&D received considerable
support in France and Russia (13 and 10 percent, respectively),
whereas industrial production and technology accounted for 15 percent
or more of governmental R&D funding in Canada, Germany, Italy,
and South Korea. Industrial production and technology is the leading
socioeconomic objective for R&D in South Korea, accounting for
30 percent of all government R&D. This funding is primarily
oriented toward the development of science-intensive industries
and is aimed at increasing economic efficiency and technological
development.
Industrial technology programs accounted for 12 percent of the Japanese
total but less than 1 percent of the U.S. total (figure
4-32 ).
The latter figure, which includes mostly R&D funding by NIST,
is understated relative to most other countries as a result of data
compilation differences. In part, the low U.S. industrial development
share reflects the expectation that firms will finance industrial
R&D activities with their own funds; in part, government R&D
that may be indirectly useful to industry is often funded with other
purposes in mind such as defense and space (and is therefore classified
under other socioeconomic objectives).
Compared with other countries, Germany, France, and Italy invested
relatively heavily in nonoriented research at 26, 25, and 24 percent,
respectively, of non-GUF government R&D appropriations. The
United States government invested 6 percent of its R&D budget
in nonoriented research, largely through the activities of NSF and
DOE.
Character of R&D Activities
Given the variations in international R&D activities by performing
sector, source of funding, and industrial focus, it follows that
countries would differ in terms of the character of their R&D
activities. The proportion of a country's R&D expenditures classified
as basic research, applied research, or development not only reflects
the sectoral structure of its national system of R&D but also
indicates differences in national priorities, traditions, and incentive
structures. The character of the R&D performed in a nation can
change as a result of market forces and policy decisions.
R&D classification by character of work often involves a greater
element of subjective assessment than other R&D indicators and
hence only a third of the OECD member countries (and Russia) have
reported character of work shares for 1998 or later.
Rather than resulting from surveys, the data are often estimated
in large part by national authorities.
Nonetheless, where these data exist, they help differentiate the
national innovation systems of different countries in terms of how
their R&D resources contribute to advancing scientific knowledge
and developing new technologies.
Most of the countries that report R&D character-of-work distributions
emphasize development, followed by applied research and then basic
research (figure 4-33
).
In four of the countries shown (United States, Japan, South Korea,
and Russia), development accounted for at least 60 percent of national
R&D, with most of the experimental development work under way
in their respective industrial sectors. In all of these countries
except Russia, the majority of development funding comes from the
industrial sector, mirroring the U.S. pattern described earlier
in this chapter. In Russia, the government funds the majority of
all R&D, including the R&D performed by its industrial sector.
This emphasis on development was not nearly as pronounced in the
other countries shown, where it ranged from 44 percent of national
R&D in France to as little as 36 percent in Switzerland and
Italy.
The European countries for which data are available tended to emphasize
basic and applied research in lieu of development.
France, Italy, and Switzerland each focused more than half of their
R&D expenditures on research (basic plus applied). The Czech
Republic and Poland, lower-income European countries, both reported
more than 30 percent of national R&D expenditures dedicated
to basic research. Switzerland, a small high-income country boasting
the highest number of Nobel prizes, patents, and science citations
per capita worldwide, devoted more than 60 percent of its R&D
to basic and applied research in 2000 despite having an industrial
R&D share (74 percent) comparable to the United States and Japan.
The differences among the Swiss, U.S., and Japanese character-of-work
shares reflect both the high concentration of chemical and pharmaceutical
R&D in Swiss industrial R&D as well as the "niche strategy"
of focusing on specialty products adopted by many Swiss high-technology
industries.
China, mirroring the pattern set by its dynamic neighbors Japan,
Singapore, and Korea, devotes only a small fraction (5 percent)
of its growing R&D effort to basic research, favoring applied
R&D aimed at immediate economic development. Separate data are
also available for Taiwan, where basic research accounts for 10
percent of all R&D and industry accounts for an even greater
share of R&D performance (64 percent) than in China (60 percent).
R&D Promotion Policies
Many countries, regarding S&T as important both for economic
growth and for general public welfare, have developed strategies
for promoting domestic R&D activity, high-technology industries,
and innovation. These strategies incorporate a variety of policy
measures ranging from direct government spending on R&D and
technology to tax policies and intellectual property policies.
Public Funding for R&D. Government spending on R&D
has continued to increase at a rate faster than inflation across
OECD. A number of governments have set explicit goals to increase
R&D activity even further:
- Austria intends to increase its share of R&D expenditure
in gross national product (GNP) to 2.5 percent by 2005.
- Canada has set a goal to raise its ranking of 15th in R&D/GDP
ratio among OECD countries to 5th by 2010.
- South Korea established its first 5-year S&T plan in 1997,
in which it set a goal to increase the share of the total government
budget allocated to R&D to 5 percent by 2002. Although South
Korea failed to achieve this goal, it increased the R&D share
substantially from 3.6 percent in 1998 to 4.7 percent in 2002.
- Norway intends to raise its absolute level of R&D funding
to the OECD average by 2005.
- Spain aims to increase its R&D spending as a share of GNP
to 1.29 percent by 2003, up from 0.9 percent in 1990.
- The European Council has set a goal for the European Union
as a region to devote 3 percent of GDP, on average, to R&D
by 2010 (OECD 2002g).
R&D Tax Policies. In many OECD countries, the government
not only provides direct financial support for R&D activities
but also uses indirect mechanisms such as tax relief to promote
national investment in S&T. Indeed, tax treatment of R&D
is broadly similar among OECD countries, with some variations in
the use of R&D tax credits (OECD
1996 and 2002g). The two main
features of the R&D tax instruments are:
- An allowance for the deduction of industrial R&D expenditures
from taxable income in the year they are incurred (exists in almost
all OECD countries, including the United States)
- An additional R&D tax credit or incentive, with a rising
trend in the use of incremental credits (exists in about half
of OECD countries, including the United States). Incremental credits
provide additional incentives for firms to increase their R&D
spending over past levels. (See "Federal R&D Tax
Credit.")
In addition, several OECD countries have special provisions that
favor R&D in small and medium-size enterprises (SMEs). In recent
years, some OECD countries have made significant changes to their
R&D tax policies in an attempt to further encourage private
investment in R&D:
- In 2002 Norway introduced a tax plan offering SMEs a 20 percent
tax allowance for both internal and external R&D expenditures.
- The United Kingdom enacted a tax plan in 2000 that allows SMEs
to deduct 150 percent of R&D expenditures.
- Australia has enhanced its R&D tax incentives, which now
allow firms to deduct 125 percent of all R&D expenditures
and 175 percent of the labor-cost component of incremental increases
in R&D.
- Spain recently enacted a 10 percent increase in the deduction
of R&D investments and broadened the scope of the incentive
to include capital investments related to innovation and the costs
of acquiring technology in the form of patents or licenses in
addition to R&D investments (OECD
2002g).
A growing number of R&D tax incentives are being offered in
OECD countries, including the United States, at the subnational
(provincial and state) levels. See Poterba
(1997) for a discussion of international elements of corporate
R&D tax policies.
Intellectual Property Policy and Technology Transfer. The
large increase in patenting at U.S. universities and colleges following
the passage of the Bayh-Dole Act in 1980 has led several OECD countries
to review or modify their own policies regarding ownership of technology
developed with public funding. OECD notes that one of the main impacts
of these policies has been "to raise awareness of and support for
technology transfer, especially within the hierarchy of PROs [publicly
financed research organizations] and among researchers and graduate
students" (OECD 2002g, p. 182).
For more information about trends in patenting at U.S. colleges
and universities, see chapter 5.
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