SCIENCE & ENGINEERING INDICATORS

The U.S. R&D system consists of the R&D activities of a variety of performers and sources of funding. Included here are private businesses, the federal government, nonfederal government, higher education (universities and colleges), and other nonprofit organizations. The organizations that perform R&D often receive significant levels of outside funding; furthermore, those that fund R&D may also themselves be significant performers.

The main sources of data for the indicators and analyses discussed in this section come from annual R&D surveys of these performers and funders, sponsored by the National Center for Science and Engineering Statistics (NCSES) within the National Science Foundation.^{​A Technical Appendix to this report provides an overview of the R&D surveys and key methods used in this report. In addition to the data presented in this section’s figures and tables, NCSES statistics on U.S. R&D performance go back to 1953 and provide details by R&D performers and funders and by type of R&D. These data time series and additional statistics are part of the NCSES National Patterns of R&D Resources series released yearly and can be accessed on the NCSES website at https://ncses.nsf.gov/pubs/nsf20307/.}

In 2017, the R&D performed in the United States totaled $547.9 billion, up strongly from $493.7 billion in 2015 and $406.6 billion in 2010 (Table 4-1 and Figure 4-1). (Unless otherwise noted, all amounts and calculations are in current dollars.)

The 2010–17 period has seen sizable year-over-year increases, averaging $20.2 billion annually—in contrast to essentially no change between 2008 and 2010, a period marked by the impacts of the Great Recession. This pattern of sustained annual increases since 2010 is due mainly to consistently growing levels of business R&D performance (Figure 4-2).

Adjusted for inflation, growth in U.S. total R&D averaged 2.7% annually over the 2010–17 period, moderately faster than the 2.2% average pace of U.S. gross domestic product (GDP) (Table 4-2).^{​In this report, dollars adjusted for inflation (i.e., constant dollars) are based on the GDP implicit price deflator (currently in 2012 dollars) as published by the Department of Commerce, Bureau of Economic Analysis (BEA) (https://www.bea.gov/iTable/index_nipa.cfm). Note that GDP deflators are calculated on an economy-wide scale and do not explicitly focus on R&D.} By comparison, during the prior decade (2000–10, which included the Great Recession), the average annual rate of growth of U.S. total R&D was lower, at 2.1%, although it still outpaced the 1.7% rate of GDP expansion.

Regarding the status of investment in R&D in the national economy, between 2010 and 2017, the ratio of U.S. R&D expenditures to GDP (or R&D intensity)^{​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.} fluctuated within a relatively narrow range (from a low of 2.68% in 2012 to a high of 2.81% in 2017) (Figure 4-3). The ratio’s 2017 level is the highest it has been since the start of the time series in 1953. (It reached 2.79% in both 1964 and 2009.)

The broader trend since the mid-1990s has been a rising R&D-to-GDP ratio, albeit with some periods of decline. Most of the rise of this ratio over the past several decades resulted from increases in nonfederal spending on R&D, particularly by the business sector (Figure 4-3). This stems from the growing role of business R&D in the national R&D system, which in turn reflects the considerable increase of R&D-dependent goods and services in the national and global economies.

In contrast to the business R&D trend, 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 was a gradual uptick in the ratio through 2009, the result of increased federal spending on biomedical and national security R&D and of the one-time incremental funding for R&D provided by the American Recovery and Reinvestment Act of 2009 (ARRA). Since 2010, the federally funded R&D-to-GDP ratio has returned to a path of decline (Figure 4-3).

The business sector is by far the largest performer of U.S. R&D. In 2017, domestically performed business R&D accounted for 73% ($400.1 billion) of the national R&D total (Table 4-1 and Table 4-3). The business sector’s status as the predominant player in national R&D performance has long been the case, with its annual share ranging between 69% and 73% over the nearly two-decade period of 2000–17 (Figure 4-1).

Adjusted for inflation, growth in business R&D averaged 3.6% annually over the period 2010–17 (Table 4-2), well ahead of the 2.7% annual average for total R&D and even further ahead of the 2.2% annual average for GDP.

At $71.3 billion, the higher education sector is a distant second to business in U.S. R&D performance. Universities and colleges annually performed between 11% and 14% of U.S. R&D from 2000 to 2017 (Figure 4-1 and Table 4-3).^{​The data for higher education R&D appearing in this report adjust the academic fiscal year basis of NCSES’s Higher Education Research and Development Survey data to calendar year and net out pass-throughs of research funds to remove double-counting in the national totals (see NCSES National Patterns of R&D Resources: https://www.nsf.gov/statistics/natlpatterns/). Accordingly, the higher education data included in this report differ from those cited in Indicators 2020 report “Academic Research and Development.”} After adjusting for inflation, growth in this sector’s R&D performance averaged 1.3% annually over 2010–17, well behind the pace of both U.S. total R&D (2.7%) and GDP (2.2%).

The federal government conducted $52.6 billion, or 10%, of U.S. R&D in 2017 (Table 4-1 and Table 4-3). This amount included $32.2 billion (6% of the U.S. total) for intramural R&D performed by federal agencies in their own research facilities and $20.3 billion (4%) of R&D performed by the 42 federally funded R&D centers (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. NCSES maintains a current Master Government List of Federally Funded R&D Centers. For information on the current FFRDC count, along with its history, see https://www.nsf.gov/statistics/ffrdclist/.} The federal performance share of U.S R&D has declined slightly since 2000, from around 11% to about 10% in 2017.

Adjusted for inflation, this sector’s R&D performance over 2010–17 declined at an annual average rate of 1.1%—providing a sharp contrast to the faster growth in total U.S. R&D (2.7%) and GDP (2.2%) (Table 4-2). In the previous decade (2000–10), federal R&D performance grew an average of 3.8% yearly, well ahead of U.S. total R&D (2.1%). This reversal in the 2010–17 period reflects mainly the waning after 2010 of the incremental funding from ARRA and the more challenging environment for federal budget support after 2011.^{​An additional factor affecting the reported level of federal intramural R&D performance in 2016 and beyond is OMB’s adoption in 2016 of a definition of “development” that narrowed what is counted to “experimental development.” The largest effect has been the exclusion of DOD’s Activity 6.7 Operational Systems Development from the federal tally of R&D expenditures. As a result, the federal intramural R&D totals reported for 2016 and 2017 (in Table 4-1, Figure 4-2, and elsewhere in this report) are approximately $5 billion lower than they would have been if tallied in the same way as 2015 and earlier. For a further discussion of this technical development in federal R&D reporting, see section Recent Trends in Federal Support for U.S. R&D in this report.}

R&D performed in the United States by other nonprofit organizations (which exclude universities and FFRDCs) was $23.3 billion in 2017 (Table 4-1 and Table 4-3). This was 4% of U.S. total R&D that year, a share estimated to have 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 2017 is estimated to be $641 million—a small share (about 0.1%) of the U.S. total (Table 4-1 and Table 4-3).

Mirroring its predominant role in R&D performance, the business sector is also the leading source of funding for R&D performed in the United States. In 2017, business sector funding accounted for $381.1 billion, or 70%, of the total U.S. R&D performance (Table 4-3). Nearly all (98%) of the business sector’s funding for R&D that year supported business R&D performance—whether performed by the company itself or in support of the R&D performed by other companies.^{​R&D funding by business in this section refers to business funding for domestic business R&D performance plus business funding for FFRDCs and U.S. academic and nonprofit R&D performers.} The remainder went to R&D performers in higher education, other nonprofit organizations, and FFRDCs.

The business sector’s dominant role in the nation’s R&D funding began in the early 1980s, when its support started to exceed 50% of all U.S. R&D funding (Figure 4-4). The business sector’s share reached 60% in 1995 and has remained above that level since that time.

The federal government is the second largest source of funding for U.S. R&D, behind the business sector. It is a major resource for most of the U.S. R&D performer sectors, except the business sector, where the federal role, although far from negligible, is overshadowed by business’s own funds.

Funds from the federal government accounted for $121.0 billion, or 22%, of U.S. total R&D in 2017 (Table 4-1). Federal funding was directed mainly to R&D performance by the federal government, businesses, and higher education (Table 4-3). In 2017, federal funding supported about 51% of academic R&D performance; 6% of business R&D performance; 35% of nonprofit R&D performance; and almost all (98%) of FFRDC R&D performance.

Long ago, the federal government was the leading sponsor of the nation’s R&D—funding 67% of all U.S. R&D in 1964 (Figure 4-4). The federal share decreased to half (49%) of all funding in the late 1970s, to a little over a third (36%) in the mid-1990s, and to a quarter (25%) by the turn of the century. (Once the United States won the race to the moon, funding for space R&D declined sharply—which was a major factor in the overall decrease of federal R&D as share of the national R&D total. At largely the same time the business sector was rapidly expanding its own energy-related R&D in response to the world oil supply crises; see Jankowski .) The share ticked up again after 2000, as changing business conditions and expanded federal funding for health, defense, and counterterrorism R&D (including ARRA funding) pushed the federal funding share to 31% in 2009 and 2010. The federal share, however, again declined in the subsequent years and stands at 22% in 2017. The recent decline reflects chiefly the waning of funding after the 2010 incremental funding from ARRA and the more challenging competition that has prevailed in the federal budgetary process for funding support since 2011.

The remainder of R&D funding from other sources is a smaller component: $45.8 billion in 2017, or about 8% of all U.S. R&D performance (Table 4-3). Of this amount, $19.7 billion was from higher education’s own institutional funds, all of which remain in the academic sector; $4.6 billion was from state and local governments, primarily supporting academic research; and $21.5 billion was from other nonprofit organizations, the majority of which funds this sector’s own R&D. Of the estimated nonprofit total, some funds ($7.2 billion) support R&D in higher education, and small amounts support business ($0.8 billion) and FFRDC ($0.2 billion) R&D performance.

In 2017, basic research activities comprised $91.5 billion (17%) of the total of U.S. R&D expenditures, followed by applied research at $108.8 billion (20%) and $347.6 billion (63%) for experimental development (Table 4-3 and Table 4-4). (For definitions of these terms, see the Glossary section.^{​R&D encompasses a wide range of activities, ranging from research yielding fundamental knowledge in the physical, life, and social sciences; to 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” (OECD 2015, OMB 2016, and NSF 2018). This longstanding trio of categories has been criticized over the years as reinforcing the idea that creating new knowledge, invention, and innovation is a linear process 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 largest performer of U.S. basic research in 2017, while the federal government remained the largest source of funding for basic research. Higher education performed just under half (48%) of basic research, and the federal government funded about 42% of all basic research performed (Table 4-3). The business sector was also a substantial performer (27%) and funder (29%) of basic research. The federal government (agency intramural laboratories and FFRDCs) and other nonprofit organizations were smaller performers, accounting, respectively, for 11% and 13% of the U.S basic research performance total in 2017.

The business sector was both the largest performer (57%) and largest funder (54%) of applied research in 2017—accounting for over half of each (Table 4-3). Higher education (18%), the federal government (17%), and nonprofit organizations (7%) were the next largest performers of applied research.

The vast majority of business sector funding for applied research remained within the sector (Table 4-3). The federal government provided a third of applied research funding, with its funding spread broadly across different sectors; higher education and federal intramural laboratories and FFRDCs received the largest amounts.

The business sector predominates in experimental development, performing 90% of the R&D in this category in 2017 (Table 4-3).^{​The Organisation for Economic Co-Operation and Development notes that in measuring R&D, one source of error is the difficulty of locating the dividing line between experimental development and the further downstream developmental activities needed to realize an innovation (OECD 2015:51–52). Most definitions of R&D set the cutoff at the point when a particular product or process reaches “market readiness.” At this point, the defining characteristics of the product or process are substantially set—at least for manufactured goods, if not also for services—and further work is aimed primarily at developing markets, engaging in preproduction planning, and streamlining the production or control system.} The federal government accounted for another 7%, much of it defense related, with the federal government itself the primary user of the results. By contrast, higher education and other nonprofit organizations perform relatively little development (respectively, 2% and 1% of the total in 2017).

The business sector provided 85% of the funding for the experimental development performed in 2017, nearly all of which remained in that sector (Table 4-3). Federal funding accounted for about 13% of the development total, with the business sector (especially defense-related industries) and federal intramural laboratories as the largest recipients.

The shares of basic research, applied research, and experimental development have remained largely the same throughout the 2010–17 period (Table 4-4). These shares are also not dramatically different than those estimated in earlier years. Furthermore, adjusted for inflation, and despite occasional year-over-year declines, the overall trend has been substantial increases in the conduct of each of the three types of R&D. (While these key features of the data are noteworthy, care is needed in definitively identifying trends. Various methodological improvements in the R&D performer surveys have been made over time—particularly before 2010, with the net implication that small percentage changes in the reported shares may not be meaningful.^{​The arithmetic is straightforward to calculate type-of-R&D shares for past years, based on the time-series data reported annually in the NCSES National Patterns of R&D Resources series. Nonetheless, care must be taken in describing the trends for these shares over time. Although NCSES’s sectoral surveys of R&D expenditures have long and consistently used the Organisation for Economic Co-Operation and Development Frascati Manual’s type-of-R&D definitions, the survey instruments have occasionally been revised to improve the reliability of the responses received, most notably in the academic, business, federal funds, and FFRDC R&D expenditure surveys. Accordingly, some differences observed in the shares directly calculated from the supplemental table time-series data more nearly reflect the effects of these improvements in the type-of-R&D survey questions than changes in the type-of-R&D shares among R&D performers.})

Between 2010 and 2017, the most evident shifts in the relative roles of performers and funders concerned basic research. In 2010, businesses performed 22% of U.S. basic research, but the sector’s role rose noticeably to 27% in 2017 (due in part to substantial increases in basic research performed by the pharmaceuticals and medicines industries, as well as the professional, scientific, and technical [PST] services sector). Over the same period, the share of U.S. basic research performed by higher education institutions—historically, the nation’s largest basic research performer—declined from 50% in 2010 to 48% in 2017. Businesses funded 23% of U.S. basic research in 2010, rising to 29% in 2017. Over the same period, the federally funded share was 53% in 2010 but has declined each year since that time, falling to 42% in 2017. Further, in 2010, funding from higher education’s own funds accounted for 10% of the funding of U.S. basic research performance; in 2017, higher education’s funding share had increased to 13%.