Overview of the State of the U.S. S&E Enterprise in a Global Context

The rising number of researchers and expanding S&E education have been accompanied by strong and widespread growth in R&D expenditures. The worldwide estimated total of R&D expenditures continued to rise at a substantial pace, more than doubling over the 15-year period between 2000 and 2015, indicative of the global trends toward investments in knowledge and technology.

Global R&D activity continues to be concentrated in North America, Europe, and the East and Southeast Asia and South Asia regions (Figure O-5). Among individual countries, the United States is by far the largest R&D performer, followed by China—whose R&D spending exceeded that of the EU total—and Japan (Figure O-6). Together, the United States, China, and Japan accounted for over half of the estimated $1.9 trillion in global R&D in 2015. Germany is fourth, at 6%. South Korea, France, India, and the United Kingdom make up the next tier of performers—each accounting for 2%–4% of the global R&D total.

A notable trend over the past decade has been the growth in R&D spending in the regions of East and Southeast Asia and South Asia compared to the other major R&D-performing areas. China continues to display the most vigorous R&D growth, accounting for nearly one-third of the global increase in R&D spending over the 2000–15 period. Despite growth in nominal spending on R&D, differences in growth rates across the world led both the United States and Europe to experience substantial declines in their shares of global R&D (from 37% to 26% in the United States and from 27% to 22% in Europe between 2000 and 2015). During the same period, the economies of East and Southeast Asia—including China, Japan, Malaysia, Singapore, South Korea, Taiwan, and India—saw an increase in their combined global share from 25% to 40%, thus exceeding the respective U.S. and the European R&D shares in 2015.

Countries and economies, however, vary in their R&D intensity, their relative focus on early versus later stages of R&D, and funding sources (business versus government sectors). Along with total R&D spending, the share of such spending relative to the size of the total economy is seen as a useful indicator of innovative capacity. Although the United States invests far more in R&D than any other individual country, several other, smaller economies have greater R&D intensity—that is, a higher ratio of R&D expenditures to gross domestic product (GDP). A stated goal by the EU is to achieve a 3% R&D-to-GDP ratio, one of the five targets for the EU in 2020 (EC 2010). In 2015, the United States had an R&D intensity of 2.7% (Figure O-7). Israel (not shown) and South Korea are essentially tied for the top spot, with ratios of 4.3% and 4.2%, respectively. Over the past decade, the ratio has fluctuated within a relatively narrow range in the United States, although the U.S. rank in this indicator has been slowly falling in recent years: 8th in 2009, 10th in 2011, and 11th in 2013 and 2015. Over the past decade, R&D intensity rose gradually in the EU as a whole; in South Korea and particularly in China, which started with a low base, the R&D-to-GDP ratio rose significantly in the last 10 years.

Many governments have only limited direct control over achieving a targeted R&D-to-GDP ratio because businesses are the predominant source of R&D funding in many leading R&D-performing nations. Businesses in the United States funded about 62% of all U.S. R&D in 2015. The corresponding business sector shares are higher, around 66%–78% in Germany, China, South Korea, and Japan, and are lower in France (56%) and the United Kingdom (48%). R&D funded by the government sector, the second major source of R&D funding in many countries, accounted for about 26% of the U.S. national total; for 24%–35% in South Korea, the United Kingdom, Germany, and France; for 21% in China; and for 15% in Japan.^​

In the United States, the federal government is a major source of R&D funding for universities, nonprofit organizations, federal institutions, and federally funded research and development centers (FFRDCs). The federal government funds a substantial amount of all basic (accounting for 44% of funding in 2015) and applied research (accounting for about 36% of funding in 2015). During the post-recession period from 2010 through 2015, however, the share of U.S. R&D funded by the federal government declined, from just over 30% to around one-fourth, primarily reflecting the waning after 2010 of the incremental funding from the American Recovery and Reinvestment Act (ARRA) and the uncertain federal budget environment since 2011, including broad federal spending caps. Business R&D has led the overall growth in U.S. R&D during this period. The decline in federal funding is an important trend that we will continue to follow, given the federal government’s critical role in the overall R&D infrastructure in the United States.

Countries also vary in their relative focus on basic research, applied research, and experimental development.^​ China spends only about 5% of its R&D funds, compared to 17% in the United States, on basic research—work aimed at gaining comprehensive knowledge or understanding of the subject under study without specific applications in mind. However, this still amounted to about $21 billion of basic research performance in China in 2015, more than France ($15 billion) which has a relatively large focus on basic research (24% of annual R&D). On the contrary, China spends 84% of its R&D funds, compared to 64% in the United States, on experimental development—work directed towards the production of useful materials, devices, systems, or methods, including the design and development of prototypes and processes. The lack of specific applications as a goal introduces an element of risk and uncertainty in basic research, which is why a substantial amount of basic research is typically funded by the government. China’s more-limited focus on basic research may reflect the large business sector role in R&D funding as well as the opportunity to build on basic research done elsewhere (Qui 2014).