Research and Development (R&D) is a key element of the U.S economy, being enforced by many industries, from technology to healthcare, in both the public and private sectors. R&D refers to creative and systematic work that aims to increase state knowledge and is divided into three categories: basic research, applied research, and experimental development. This can result in tangible, intangible, or intellectual property (PPI) products, contributing to innovation, production, productivity growth, competitiveness, and public policy objectives internationally.
Summary
- The United States has maintained its position as the top R&D performer globally, although other countries have shown steady growth in gross domestic expenditure on R&D (GERD) and R&D intensity. U.S. GERD grew at a faster rate than GDP between 2010-2021, and R&D intensity was 3.5%: a figure similar to other countries such as Taiwan, Japan, and Germany.
- Federal support and investment in R&D are a key feature of the U.S. R&D enterprise. Federal funding constitutes the second largest source of funding and the leading source of basic research output in 2022, although the largest performer in this category is the higher education sector.
- The corporate sector remained the main performer and funder of R&D in the U.S., with an emphasis on investment in technology production focused on semiconductors, software, AI, and nanotechnology R&D.
U.S R&D – General
According to the National Science Foundation 2024 Report, R&D in the United States is carried out and financed by a range of different players, including companies, governments, higher education, and non-profit organizations. Since the end of World War II, U.S R&D performance has seen successive and stable growth, with the compound annual growth rate (CAGR) remaining at around 4% in constant dollars since 1953.
Five industries accounted for 79% of the $602.5 billion spent by U.S. businesses that conducted R&D by firms with 10 or more domestic employees in 2021:
- information (including software publishing) at 25%.
- chemical manufacturing (including pharmaceuticals and drugs) at 18%;
- computer and electronic product manufacturing (including semiconductors) by 17%.
- professional, scientific and technical services (including R&D services) by 11%.
- transportation equipment manufacturing (including motor vehicles and aerospace products and parts) by 8%.
In 2022, R&D output was approximately $885.6 million, with the country’s main performance sectors being business, higher education, and the federal government. Additionally, business represented by far the largest performing sector, with 78% of U.S. R&D ($692.7 billion). While also being the largest funder in the U.S, with approximately $672.9 billion funded. The ratio of R&D expenditures to gross domestic product (GDP) follows the pattern of relative shares of business versus federal resources, having been above 3.0% since 2019 and reaching 3.4% in 2022.
In the same year, the experimental development sector carried out the most R&D in the U.S., accounting for $596.2 billion in current dollars, which is 67% of the country’s total R&D output. Followed by applied research (18%) and basic research (15%). These positions have remained stable over the last decade, with variations in the leadership in the types of research, with the education sector conducting most of the basic research and the business sector remaining ahead in experimental development and applied research.
Federal Support for R&D
In the United States, federal R&D obligations are presented by fiscal year (FY) in current U.S. dollars, and account for monetary value of orders placed, contracts awarded, services received, and other transactions by federal agencies whose funding may be earmarked for internal or external R&D performance; typically academic institutions and centers, businesses, state and local governments, and nonprofit organizations.
In recent decades, federal R&D funding has been a pillar of U.S. science and technology policy, with fluctuations in obligations from 2008 and notable increases in fiscal years 2009-2010 and 2019-2021, which can be explained by two separate events:
- the spike in R&D funding caused by the American Recovery and Reinvestment Act (ARRA) of 2009
- the investment in COVID-19-related research and development efforts, which declined in 2023
A small number of agencies’ R&D for the FY 2022 and plant R&D obligations made up most of the total of federal obligations. The Department of Health and Human Services (HHS) along with the Department of Defense (DOD) accounted for about three-quarters of the federal total ($196.6 billion), with $74.4 billion and $72.6 billion, respectively. The total number remained at the same level as the prior year’s FY, with the Compound Annual Grow Rate (CAGR) maintaining its six-year average of 10,1%.
Industry and Technology
In the private sector, R&D constitutes a leading component of global value chains (GVCs) for industries at the forefront of innovation in manufacturing, emerging and critical technologies, and high-tech services worldwide. Furthermore, International manufacturing agreements and global R&D networks built over recent decades have been challenged by geopolitical and pandemic-related factors. These factors are affecting the organization of international R&D, economic activity, and the role of critical or emerging technologies (IMF 2023; OECDE 2023e).
In critical and emerging technologies, R&D is an essential contributor to economic competitiveness and national security, covering semiconductors, artificial intelligence (AI), synthetic biology, biofabrication and other advanced processes.
In the US, the semiconductor industry plays a key role, with AI applications, autonomous and electric vehicles, and 5G communications, with its current production involving engineering, design, manufacturing, assembly, testing, and packaging. In 2021, semiconductor R&D increased by 9.8% in US dollars, after rising by 22.8% in 2020, and the overall share of semiconductor manufacturing in total US computer manufacturing R&D was 47%, the highest after more than a decade of fluctuations around 40%.
US business R&D performance is concentrated across a range of industries: software R&D, for example, has been a growing part of business R&D spending, accounting for 43% of the $602.5 billion in 2021. The professional, scientific, and technical services industry, which includes scientific R&D services, performed 19% of AI-focused business R&D, while nanotechnology-focused R&D accounted for 50% of two different manufacturing sectors: semiconductor manufacturing and semiconductor machinery manufacturing R&D, accounting for 50% and 43%, respectively.
Global R&D
Total R&D spending in 2021 was US$2.6 trillion, across all 37 members of the Organization for Economic Cooperation and Development (OECD) plus 7 other economies available in the OECD database: Argentina, China, Romania, Russia, Singapore, South Africa, and Taiwan.
The United States, China, Japan, Germany, and South Korea constituted the top 5 economies by R&D performance, accounting for 73% of the total value in 2021. The European Union accounted for 18% of global Gross Domestic R&D Expenditure (GERD), with China’s GERD notable for its double-digit annual growth (nominal CAGR) between 2000 and 2010 (20.5%), and between 2010-2021 (11,0%), exceeding the GDP growth rate in each of these periods. For the U.S., the CAGR for GERD between 2000-2010 was 4.3%, compared with a 3.9% growth rate for GDP during that decade, rising to 6.4% annually in the following decade, an even higher growth rate than GDP over the same period (4.1%).
The U.S achieved $806.0 billion in GERD in 2021, based on internationally comparable estimates (through currency conversion and adjustments for economic differences using purchasing power parity (PPP), indicating a 10% increase from the previous year. Meanwhile, China totaled $667.7 billion, an increase of 14% from 2020, maintaining its position as the second-largest domestic R&D performer in recent years. Japan, Germany, South Korea, the United Kingdom, and France were also strong R&D performers.
Among the top R&D performers, the business sector is the largest performer and funder; the government sector, in turn, conducted a larger share of R&D in countries such as Germany and China than the U.S government sector (15% in both, compared with 8% in the U.S in 2021). Higher education R&D performance was at least 20% in the European Union, the United Kingdom, the United States, and France.
Regarding intensity (based on the GERD-to-GDP ratio), only South Korea and Israel had R&D intensities above 4.0%, and eight economies recorded intensities between 3.0% and 4.0%, including Taiwan (3.8%), the United States (3.5%), Japan (3.3%) and Germany (3.1%).
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Source: https://ncses.nsf.gov/pubs/nsb20246/introduction
