This is an update from our previous post on international R&D funding trends, published in June 2016.
Overall R&D Outlook
The latest science and technology data published by the Organisation for Economic Co-operation and Development (OECD), which can be accessed here, points to sluggish movement on the R&D funding front. In the OECD area, which comprises 35 member countries (see list), R&D as a percentage of GDP – otherwise known as “R&D intensity” – was essentially unchanged from 2014 to 2015 (see chart at right). US R&D intensity saw a very slight uptick, from 2.76 percent in 2014 to 2.79 percent in 2015, while EU R&D intensity remained flat during this time. Within the EU, France and Germany maintained R&D intensities of 2.23 percent and 2.87 percent, respectively, the same as 2012 levels. Finland continued its downward trend, a result of government austerity and industrial restructuring. The continued slump in OECD R&D intensity makes it less likely that members will achieve national research funding goals; the European Union and former President Obama, among others, have cited a preferred R&D intensity target of 3 percent of GDP.
Meanwhile, the OECD data suggests that R&D spending in Asian countries is slowing down. After a decade of double-digit increases in R&D intensity, Korea saw its first drop, from 4.29 percent in 2014 to 4.23 percent in 2015. Japan, with its recent pattern of ups and downs, also registered a decrease. Japan’s 5th S&T Basic Plan covering the years 2016-2020 addresses major ongoing issues including energy and an aging population, while acknowledging that government R&D investment targets have not been met since the Second Basic Plan. Although China remains on an upward R&D funding trajectory, having surpassed the EU’s R&D intensity as of 2013, Chinese investment appears to be decelerating. According to the OECD Science, Technology and Innovation Outlook published in December 2016, China has entered into a so-called “New Normal” period, characterized by a shift in policy from “fast growth to sustainable growth.” China’s 13th 5-Year Plan (2016-2020) sets an R&D intensity target of 2.5 percent by 2020, indicating that Chinese R&D expenditures will increase in the coming years, but at a slower rate than in previous years.
Despite the projected slowdown in R&D funding, China continues to make up an ever-larger share of the global R&D spending pie (see chart at right). As recently as 2009, China spent just half of what it currently spends on R&D, even after adjusting for inflation. By 2014, China had surpassed the EU as a whole in R&D spending. OECD analysts have predicted that China could overtake the US in total R&D spending by around 2019. Keep in mind, however, that Chinese R&D still mainly focuses on applied research and development, with relatively less investment going towards basic research than more advanced innovation-driven economies, as noted in a previous AAAS analysis. China’s transformation from a labor and resource-intensive economic development model into one increasingly dependent upon technological innovation will require a series of reforms to China’s current research funding paradigm, among other institutional changes in the Chinese S&T system, according to a recent study published in the international journal Science.
Business R&D Spending Offsets Government Decline
The latest OECD data reaffirms that recent R&D spending increases are being driven by businesses and industry. Business enterprise R&D in the OECD area grew from $588.1 billion in 2005 to $785.3 billion in 2015 in inflation-adjusted dollars, a substantial 33.5 percent increase over the decade. A sign of business recovery from the global recession, the percentage of OECD R&D funded by industry rose from 58.5 percent in 2010 to 61.3 percent in 2015. Meanwhile, the government share of R&D expenditures in the OECD fell from 31.2 percent in 2010 to 27.4 percent in 2014. Government-financed R&D as a percentage of GDP likewise declined from a recent peak of 0.73 percent in 2009 to 0.66 percent in 2014 among OECD countries. The ongoing rise in industry R&D, and parallel drop in government financing, is even more evident in the United States. Industry accounted for 64.1 percent of total US R&D in 2015, a sizeable increase of 7.2 percent since 2010. However, the government share of total US R&D dropped from 32.6 percent in 2010 to 24 percent in 2015. The graph above shows the current distribution of R&D funding for the US and selected countries.
Patent productivity offers another useful, though limited, benchmark for comparing countries’ innovation economies. Japan and Korea have churned out impressive patent filing statistics over the last 15 years, while China alone saw a seventeen-fold increase in Patent Cooperation Treaty (PCT) filings, leapfrogging a number of OECD countries (see below left). Chinese government incentives to encourage filing have successfully increased patent activity, but have raised questions about the importance of quality over quantity. Moreover, China’s global share of triadic patents – widely recognized as the “gold standard” and a key indicator of the internationalization of knowledge – remains well below the US, EU, and Japan (see below right). US patent filings saw a recent uptick amidst reform efforts that culminated with passage of the 2011 America Invents Act, which addressed patent processing time and sought to harmonize US patent law with other countries, most of which operate on the "first-to-file" system. Despite reforms, the US continues to struggle with “patent trolls,” which has been less of a problem in Europe and elsewhere.
Cover Image Credit: Gemini Observatory/AURA