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

Recent Trends in U.S. R&D Performance

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• Related Content-
• Performers of R&D
• R&D, by Type of Work
• U.S. Total R&D and R&D Intensity

The most recent NCSES data indicate that R&D performed in the United States totaled $495.1 billion in 2015 (Table 4-1; Figure 4-1). The corresponding total for 2014 was $475.4 billion. These numbers compare to U.S. R&D totals of $433.6 billion in 2012 and $454.0 billion in 2013. In 2008—just before the onset of the main economic effects of the national and international financial crisis and the Great Recession—the U.S. total was $404.8 billion. (All amounts and calculations are in current dollars, unless otherwise noted.)

These data reflect increases of $21.5 billion in 2014 and $19.7 billion in 2015—year-over-year increases in the U.S. total from 2010 to 2015 averaged $17.7 billion. The 2014 and 2015 increases reflect mainly higher levels of business R&D performance (Figure 4-2). 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 of 2008–15, marginally behind the 1.5% average pace of U.S. gross domestic product (GDP) (Table 4-2).^​ 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. (As a comparative yardstick, a 7% average annual rate of growth yields a doubling of the quantity in 10 years.)

In part, the smaller average annual rate of growth for the 2008–15 period (by contrast to 1998–2008) partly reflects the inclusion of the Great Recession years (notably, 2009 and 2010) at the outset of this period. Considering just the 5-year period of 2010–15, the average annual pace of growth for U.S. R&D is 2.3%, compared to 2.2% for GDP (Table 4-2). The growth of business R&D over this same 5-year period is 3.3%, well ahead of GDP growth, but it is not strong enough to offset the slower average rates of growth (if not outright declines) in some of the other performing sectors.

Regarding the intensity of R&D in the national economy, the ratio of U.S. R&D expenditures to GDP was 2.73% in 2015 and also 2.73% in 2014 (Figure 4-3). In comparison, the ratio was 2.72% in 2013 and 2.68% in 2012. (The ratio of total national R&D expenditures to GDP is often reported as a measure of the intensity of a nation's overall R&D effort and is widely used as an international benchmark for comparing countries’ R&D activities.)

The U.S. R&D-to-GDP ratio stood at 2.79% in 2009—matching the ratio's highest level since the start of the time series in 1953 (it was also 2.79% in 1964). Over the 10-year period 2005–15, the ratio has fluctuated year to year, between a low of 2.48% in 2005 and the aforementioned high of 2.79% in 2009.

The broader trend since the late 1990s has been a rising R&D-to-GDP ratio, although with some periods of decline. Most of the rise of this ratio over the past several decades has been from the increase of nonfederal spending on R&D, particularly by the business sector. This arises from the growing role of business R&D in the national R&D system, which in turn reflects the unabated increase of R&D-dependent goods and services in the national and global economies.

By contrast, the ratio of federally funded R&D expenditures to GDP declined from the mid-1980s to the late 1990s, notably from cuts in defense-related R&D. There had been a gradual uptick in the ratio through 2009, the result of increased federal spending on biomedical and national security R&D and the one-time incremental funding for R&D provided by the American Recovery and Reinvestment Act of 2009 (ARRA). But the federally funded R&D-to-GDP ratio has returned to a path of decline since 2010 (Figure 4-3).

Of note, the Department of Commerce’s Bureau of Economic Analysis (BEA) introduced a comprehensive set of revisions to the U.S. national income and product accounts in July 2013, including explicitly recognizing R&D as investment in the measure of U.S. GDP. These changes resulted in modest revisions to the U.S. GDP time series back to 1929. The R&D-to-GDP ratio data reported here reflect BEA’s revised GDP data series, both in the present and the past. For further information, see sidebar R&D in the U.S. National Income and Product Accounts.

NCSES tracks the R&D spending patterns of the major performers in the overall U.S. R&D system. Included are businesses, the intramural R&D activities of federal agencies, federally funded research and development centers (FFRDCs), nonfederal government organizations (mainly state government), higher education institutions, and other nonprofit organizations. (All amounts and calculations are in current dollars, unless otherwise noted.)

The business sector is by far the largest performer of U.S. R&D. In 2015, domestically performed business R&D accounted for $355.8 billion, or 72% of the $495.1 billion national total (Table 4-1 and Table 4-3). The business sector’s predominance in the composition of national R&D performance has long been the case, with its annual share ranging between 69% and 75% over the 20-year period of 1995–2015 (Appendix Table 4-2). Business R&D performance increased by $15.1 billion in 2015, following gains of $8.2 billion in 2012, $20.3 billion in 2013, and $18.2 billion in 2014. These increases are in contrast to the essentially unchanged levels of business R&D performance in both 2009 and 2010.^​

Inflation-adjusted growth in business R&D averaged 1.4% annually over the 7-year period 2008–15, essentially at the 1.4% annual average for total R&D and just behind the 1.5% annual average for GDP (Table 4-2). Nonetheless, growth in business R&D substantially surpassed the growth rates for both total R&D and GDP in 4 of the 7 years spanning the full 2008–15 period (2011, 2013, 2014, and 2015).

The higher education sector is the second largest performer of U.S. R&D. Universities and colleges performed $64.7 billion, or 13%, of U.S. R&D in 2015 (Table 4-1 and Table 4-3).^​ Over the 20-year period 1995–2015, the higher education share of U.S. R&D has ranged between 11% and 14% (Appendix Table 4-2). Furthermore, the higher education sector is a special niche in the nation’s overall R&D system: in recent years it has accounted for just under half of the nation’s basic research, while training the nation’s next generation of researchers. (For statistics, see section R&D, by Type of Work later in this chapter.)

Higher education R&D performance increased by $2 billion–$3 billion each year over 2009–11; however, the annual increases dropped below $1 billion in 2012–14 (Table 4-1 ). The data show a $2 billion increase in 2015. After adjusting for inflation, growth in this sector's R&D performance averaged 1.6% annually over 2008–15, somewhat ahead of that for U.S. total R&D (1.4%) and GDP (1.5%). However, when the year-by-year track is examined, the sector's growth was stronger in the first half of this period (2009, 2010, and 2011) (Table 4-2).

The federal government conducted $54.3 billion, or 11%, of U.S. R&D in 2015 (Table 4-1 and Table 4-3). This included $35.7 billion (7% of the U.S. total) for intramural R&D performed by federal agencies in their own research facilities and $18.6 billion (4%) of R&D performed by the 41 FFRDCs.^​ (FFRDCs are R&D-performing organizations that are exclusively or substantially financed by the federal government. An FFRDC is operated to provide R&D capability to serve agency mission objectives or, in some cases, to provide major facilities at universities for research and associated training purposes. Each FFRDC is administered by an industrial firm, a university, a nonprofit institution, or a consortium.^​) In 1995, the federal performance share of U.S R&D was about 14%, but it has gradually declined—although with some occasional increases—in the years since.

The federal performance total increased by $2 to $3 billion each year over 2009–11. But it decreased $1.4 billion in 2012 and $1.1 billion in 2013. In 2014, there was a $1.6 billion increase and about the same in 2015. These changes affected both federal intramural R&D and FFRDCs (Table 4-1). Adjusted for inflation, growth in this sector's R&D performance averaged 1.0% annually over 2008–15, behind that for U.S. total R&D (1.4%) and GDP (1.5%). The reversal in the 2012–15 period of the expansionary trend seen during 2009–11 reflects both the waning after 2010 of the incremental funding from ARRA and the more recent federal budget environment after 2011.

This volume of the federal government’s R&D performance is small compared with that of the U.S. business sector. Even so, the $54.3 billion performance total in 2015 exceeded the total national R&D expenditures of every country except China, Japan, Germany, South Korea, and France.^​

R&D performed in the United States by other nonprofit organizations (which excludes universities and FFRDCs) was $19.7 billion in 2015 (Table 4-1 and Table 4-3). This was 4% of U.S. total R&D in 2015, a share that has increased only slightly since the late 1990s.

NCSES started to track the annual intramural R&D performance of state agencies in 2006. The total for all 50 states and the District of Columbia in 2015 is estimated to be $610 million—a small share (about 0.1%) of the U.S. total (Table 4-1 and Table 4-3).

The sidebar Location of R&D Performance, by State summarizes the leading geographic locations of U.S. R&D performance. For additional R&D indicators at the state level, see the State Indicators data tool.

Funds that support the conduct of R&D in the United States come from a variety of sources, including businesses, federal and nonfederal government agencies, higher education institutions, and other nonprofit organizations. For the most part, the mix of funding sources varies by performer. (All amounts and calculations are in current dollars, unless otherwise noted.)

The business sector is the predominant source of funding for R&D performed in the United States. In 2015, business sector funding accounted for $333.2 billion, or 67%, of the $495.1 billion of total U.S. R&D performance (Table 4-1 and Table 4-3). Nearly all (98%) of the business sector's funding for R&D that year was directed at business R&D performance—even if funding provided by some businesses was performed by other businesses.^​ The small remainder went to R&D performers in higher education, other nonprofit organizations, and FFRDCs.

The business sector’s large role in the nation’s R&D funding began in the early 1980s, when the support it provided started to exceed 50% of all U.S. R&D funding (Figure 4-4). This business share moved up to 60% in 1995. It has been above that level throughout the years since, but fluctuating in the range of 60%–69% (Appendix Table 4-6).

The federal government is the second largest source of overall funding for U.S. R&D. It is a major source for most U.S. R&D performer sectors except business, where the federal role, although not negligible, is overshadowed by the business sector’s own funds.

Funds from the federal government accounted for $120.9 billion, or 24%, of U.S. total R&D in 2015 (Table 4-1 and Table 4-3). This federal funding was directed mainly to R&D performance by the federal government, business, and higher education.

Federal funding accounted for all of the $35.7 billion of federal intramural R&D performance in 2015 and most (98%) of the $18.6 billion of R&D performed by FFRDCs. Nonfederal support for FFRDC R&D has been around $0.4 billion or so in recent years, or 2% of FFRDCs’ total support.

Federal funding to the business sector accounted for $27.0 billion of business R&D performance in 2015, or 8% of the sector's R&D total that year (Table 4-3). Federal funds to higher education supported $33.5 billion, or 52%, of the $64.7 billion spent on academic R&D in 2015. For the R&D performed by other nonprofit organizations, $6.2 billion (31%) of this sector’s $19.7 billion of performance was supported by federal funds.

The federal government was once the leading sponsor of the nation’s R&D, funding some 67% of all U.S. R&D in 1964 (Figure 4-4). The federal share decreased in subsequent years to 49% in 1979, 36% in 1994, down to a historical low of 25% in 2000. However, changing business conditions and expanded federal funding for health, defense, and counterterrorism R&D (including that from the ARRA) pushed the federal funding share to 31% in 2009 and 2010. But the federal share has declined somewhat in the subsequent years, falling to 24% in 2015, reflecting the waning after 2010 of the incremental funding from the ARRA and the more recent federal budget environment since 2011.

Through the early 1960s, the federal government had funded more than half of the nation’s business-performed R&D. However, this share declined in subsequent years to around 9% in 2000, increasing again to 12%–14% from 2008 to 2010, but dropping back down to 8% by 2015 (Appendix Table 4-2).

The remainder of R&D funding from other sources is a smaller component: $41.0 billion in 2015, or about 8% of all U.S. R&D performance (Table 4-3). Of this amount, $17.3 billion (4%) was from higher education’s own institutional funds, all of which remain in the academic sector; $4.3 billion (1%) was from state and local governments, primarily supporting academic research; and $19.4 billion (4%) was from other nonprofit organizations, the majority of which funds this sector's own R&D. Of the nonprofit total, some funds ($6.2 billion) support R&D in higher education, and small amounts support business ($1.1 billion) and FFRDC ($0.1 billion) R&D performance.

Basic research activities accounted for $83.5 billion, or 17% of the total of U.S. R&D expenditures in 2015 (Table 4-3 and Table 4-4). Applied research was $97.2 billion, or 20% of the total. Most of the R&D total—$314.5 billion, or 64%—went toward experimental development. (For definitions of these terms, see this chapter’s Glossary. All amounts and calculations are in current dollars, unless otherwise noted.)

R&D encompasses a wide range of activities, from research yielding fundamental knowledge in the physical, life, and social sciences, and research addressing national defense needs and such critical societal issues as global climate change, energy efficiency, and health care to the development of platform or general-purpose technologies that can enable the creation and commercial application of new and improved goods and services. The most widely applied classification of these activities characterizes R&D as “basic research,” “applied research,” or “experimental development” (NSF 2006; OECD 2015; OMB 2017). (For definitions of these terms, see Glossary.)

This longstanding trio of categories has been criticized over the years as reinforcing the idea that creating new knowledge, invention, and innovation are linear processes beginning with basic research, followed by applied research and then development, and ending with the production and diffusion of new technologies and eventually commercially significant innovations. Nonetheless, alternative classifications that provide measurable distinctions, capture major differences in types of R&D, and are widely accepted as superior have yet to be developed. Despite the recognized limitations of the basic research-applied research-development classification framework, it remains useful in providing indications of differences in the motivation, expected time horizons, outputs, and types of investments associated with R&D projects.

Higher education institutions continued to be the primary performers of U.S. basic research in 2015, accounting for just under half (49%) of the $83.5 billion of basic research performance that year (Table 4-3). The business sector was the second largest basic research performer, about 26%. The federal government (agency intramural laboratories and FFRDCs) performed 12%, and other nonprofit organizations performed 13%.

The federal government remains the largest source of funding for basic research, accounting for about 44% of the $83.5 billion funding total in 2015 (Table 4-3). The business sector was also a substantial funder, providing 27% of the total.

The business sector performed 58% of the $97.2 billion of applied research in 2015 (Table 4-3). Higher education accounted for 18%, the federal government (federal agency intramural laboratories and FFRDCs) accounted for 17%, and nonprofit organizations accounted for 6% of applied research.

The business sector provided 53% of the funding for applied research in 2015, with the majority remaining within the sector (Table 4-3). The federal government accounted for about 36%, spread broadly across the performers, with the largest amounts going to higher education and federal intramural laboratories and FFRDCs.

The business sector predominates in experimental development, performing 88% of the $314.5 billion the United States devoted to this R&D category in 2015 (Table 4-3).^​ The federal government (agency intramural laboratories, FFRDCs) accounted for another 9%—much of it defense related, with the federal government being the main consumer. By contrast, higher education and other nonprofit organizations perform relatively little development (respectively, 2% and 1% of the total in 2015).

The business sector provided 82% of the funding for the $314.5 billion of U.S. development in 2015, most of which remained in the sector (Table 4-3). Federal funding accounted for about 16% of the development total—with the business sector (especially defense-related industries) and federal intramural laboratories being the largest recipients.

Data on the split of U.S. total R&D among the three types of R&D work in previous years appear in Table 4-4. Care is needed in drawing trend conclusions from these data, for reasons discussed in the notes for Table 4-4.^​ Nonetheless, the table’s data indicate that the shares of basic research, applied research, and development were largely the same between 2010 and 2015—and, furthermore, were also not dramatically different in the more distant past. Adjusted for inflation, U.S. overall performance of basic research is somewhat higher in 2015 ($75.9 billion) than in 2010 ($75.0 billion). More substantial increases are registered for applied research ($88.3 billion in 2015, compared to $78.3 billion in 2010) and experimental development ($285.9 billion in 2015, compared to $248.4 billion in 2010).