Chapter 4 | Research and Development: U.S. Trends and International Comparisons

Highlights

R&D performed in the United States totaled $495.1 billion (current dollars) in 2015 and an estimated $475.4 billion in 2014. These numbers compare to U.S. R&D totals of $433.6 billion in 2012 and $454.0 billion in 2013. In 2008, just ahead of the onset of the main economic effects of the national and international financial crises and the Great Recession, U.S. R&D totaled $404.8 billion.

• These data reflect increases of $20.3 billion in 2013, $21.5 billion in 2014, and $19.7 billion in 2015. These sizeable yearly increases in the U.S. total arise mainly from increased business R&D performance. Across the other main R&D-performing sectors, the annual changes were far smaller—and, in some cases, were declines.
• Adjusted for inflation, growth in U.S. total R&D averaged 1.4% annually over the 7-year period 2008–15, marginally behind the 1.5% average pace of U.S. gross domestic product (GDP) over the same period. By comparison, the average annual rate of growth was notably higher in the prior 10-year period (1998–2008): 3.6% for total R&D and 2.2% for GDP. The smaller rate of growth in 2008–15 partly reflects inclusion of the Great Recession years. Nonetheless, considering only the 5-year period of 2010–15, the average annual pace of growth for total R&D is 2.3%, just ahead of 2.2% for GDP.

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

• The business sector performed $355.8 billion of R&D in 2015, or 72% of the U.S. total, drawing on business, federal, and other sources of R&D funding.
• The business sector itself provided $333.2 billion of funding for R&D in 2015, or 67% of the U.S. total, most of which supported R&D performed by business.
• The level of business R&D performance declined in 2009 and 2010, compared with the 2008 level, but returned to an expansionary path in 2011 through 2015. Even with these declines, business R&D performance has continued to account for most of the nation’s R&D growth over the last 10 years.
• The academic sector was the second largest performer of U.S. R&D, accounting for $64.7 billion in 2015, or about 13% of the national total.
• The federal government was the second largest funder of U.S. R&D, accounting for $120.9 billion, or 24% of U.S. total R&D performance in 2015.

Most of U.S. basic research is conducted at higher education institutions and is funded by the federal government. However, the largest share of U.S. total R&D is experimental development, which is mainly performed by the business sector. The business sector also performs the majority of applied research. Although the absolute dollar values and actual shares have changed over time, these broad trends have remained mostly consistent for several decades.

• In 2015, basic research was about 17% ($83.5 billion) of total U.S. R&D performance, applied research was 20% ($97.2 billion), and experimental development was about 64% ($314.5 billion).
• Higher education institutions historically have been the main performers of U.S. basic research, and they accounted for just under half (49%) of all U.S. basic research in 2015. The business sector is also now a sizable performer of basic research, accounting for 26% of the basic research total in 2015. The federal government remained the largest funder of basic research, accounting for about 44% of all such funding in 2015.
• The business sector was the predominant performer of applied research, accounting for 58% of all U.S. applied research in 2015. Business also provided 53% of the funding for the applied research total, with most of this support remaining within the sector. The federal government accounted for 36% of the funding.
• Experimental development was by far the largest component of U.S. R&D. The business sector performed 88% of it in 2015 and provided 82% of the funding. Federal funding accounted for only 16% of this experimental development, with the business sector (especially defense-related industries) and federal intramural laboratories and federally funded R&D centers (FFRDCs) being the largest recipients.

Worldwide R&D performance totaled an estimated $1.918 trillion in 2015, up from $1.415 trillion in 2010 and $722 billion in 2000. Fifteen countries or economies performed $20 billion or more of R&D in 2015, accounting for 85% of the global total. The top rankings at present continue to be dominated by the United States and China.

• The United States remained the largest R&D-performing country in 2015, with gross domestic expenditures on R&D of $497 billion, a 26% share of the global total, and an R&D-to-GDP ratio of 2.7%. China was a decisive second, with R&D expenditures of $409 billion, a 21% global share, and an R&D-to-GDP ratio of 2.1%.
• Japan ($170 billion, 9% global share, ratio of 3.3%) and Germany ($115 billion, 6% global share, ratio of 2.9%) were the comparatively distant third and fourth largest R&D-performing countries. The other 11 countries or economies in the top 15 were South Korea, France, India, the United Kingdom, Brazil, Russia, Taiwan, Italy, Canada, Australia, and Spain—with the annual national R&D expenditure totals ranging from about $61 billion (France) down to $20 billion (Spain).
• Total global R&D increased (current dollars) more than two and a half times from 2000 to 2015. About 19% of this increase reflected the growth of U.S. R&D over this period, 17% from the European Union (EU) as a whole (including Germany, France, and the United Kingdom), as well as 5%–6% each from Japan and South Korea. Nonetheless, the largest contributor by far was China, which accounted for 31% of the decade and a half increase. The pace of growth in China’s overall R&D over this period remained exceptionally high, at just over 18% annually (or around 16% adjusted for inflation).
• The U.S. share of worldwide R&D was notably higher in 2000 (37%) than in 2015 (26%), continuing to decline over this 15-year period. The EU also exhibited a decline over the same period: from 25% of the global total in 2000, down to 20% in 2015. The expansion was clearly driven by the economies of East/Southeast and South Asia—including China, Japan, South Korea, India, and Taiwan—which represented 25% of the global R&D total in 2000, rising to about 40% in 2015.

The business sector remains by far the largest performer in the U.S. R&D system. R&D is performed across a wide range of manufacturing and nonmanufacturing sectors. R&D intensity is concentrated, however, in a few industries.

• The R&D performed domestically by U.S. businesses occurs mainly in five business sectors: chemicals manufacturing (particularly the pharmaceuticals industry); computer and electronic products manufacturing; transportation equipment manufacturing (particularly the automobile and aerospace industries); information (particularly the software publishing industry); and professional, scientific, and technical services (particularly the computer systems design and scientific R&D services industries).
• In 2015, these five business sectors accounted for 83% of the $355.8 billion total domestic business R&D performance that year. Similarly, in 2008, the five sectors accounted for 84% of the business total.
• Considering U.S. business as a whole, domestic R&D is mainly funded through performing companies’ own funds: 83% in 2015 (and similar shares for recent years). For the remaining 17%, where the R&D is performed by companies but funded by others, the largest source of funding is the federal government, whose funding accounted for about 8% of the business R&D performance total in 2015. Other companies located domestically contributed another 4% of the funding, and foreign companies about 5% of the funding. Nonfederal governments and both domestic and foreign nonprofit organizations also were sources but at very small levels. (Some notable departures from these aggregate average shares occur when specific sectors and industries are considered.)
• Large companies (those with 25,000 or more domestic employees) accounted for 36% of all U.S. business R&D performance in 2015. Micro companies (those with 5-9 domestic employees) and small companies (10-49 domestic employees) together accounted for 5%. The other 59% was spread among the size classifications between these extremes. This distribution of business R&D performance share by size has not greatly changed in recent years.

Federal funding for the R&D performed by federal departments and agencies, as well as most of the other major U.S. R&D performers, increased annually (in both current and constant dollar terms) from the late 1990s through FY 2010. Over the years since, however, the levels of federal support have dropped noticeably.

• Federal obligations for the total of R&D and R&D plant were $129 billion in FY 2008, $145 billion in FY 2009, and $147 billion in FY 2010. But the years thereafter have been marked by several large declines—in FYs 2011 and 2013, with only modest offsetting increases in FYs 2012, 2014, and 2015. Federal R&D funding had dropped to $131 billion in FY 2015—a decline of 18% from the FY 2010 level, when adjusted for inflation.
• Fifteen federal departments and 12 other agencies engage in and/or fund R&D in the United States. Eight of these departments or agencies reported R&D obligations in FY 2015 in excess of $1 billion: U.S. Department of Agriculture, Department of Commerce, Department of Defense (DOD), Department of Energy, Department of Health and Human Services (HHS), Department of Homeland Security, National Science Foundation, and National Aeronautics and Space Administration. These together accounted for 97% of all federal obligations for R&D that year.
• DOD has historically accounted for half or more of annual federal R&D funding. Health-related R&D accounts for the majority of federal nondefense R&D funding. DOD and HHS have borne the brunt of the federal R&D funding decline since FY 2010, with the other nondefense categories being much less affected.