U.S. business R&D expenditures are measured as current costs, which include labor costs; materials and supplies; expensed equipment (not capitalized); leased facilities and equipment; and expenses for depreciation and amortization on property, plant, and equipment. These expenditures are dominated by labor costs, in comparison with current costs associated with facilities or equipment such as rental expenses or expensed equipment (Moris and Shackelford 2023b).^{​Separately, businesses also have R&D capital expenditures—payments for long-lived assets to support R&D activities. Businesses that performed or funded U.S. R&D in 2020 had $32.5 billion in R&D capital expenditures (Moris and Shackelford 2023a).Separately, businesses also have R&D capital expenditures—payments for long-lived assets to support R&D activities. Businesses that performed or funded U.S. R&D in 2020 had $32.5 billion in R&D capital expenditures (Moris and Shackelford 2023a).}

Of the $608.6 billion of U.S. business R&D performed in 2021, $602.5 billion was performed by companies with 10 or more domestic employees, and $6.1 billion was performed by businesses with 9 or fewer domestic employees (or microbusinesses) (Kindlon 2023; Britt 2023).^{​For foreign R&D by multinational enterprises, see Bureau of Economic Analysis (2022) and Moris (2021).For foreign R&D by multinational enterprises, see Bureau of Economic Analysis (2022) and Moris (2021).} Statistics are from NCSES’s Annual Business Survey (ABS) for microbusinesses and the Business Enterprise Research and Development (BERD) Survey for the larger companies.^{​For more information, see https://ncses.nsf.gov/surveys/business-enterprise-research-development/2020#survey-info for the BERD Survey and https://ncses.nsf.gov/surveys/annual-business-survey/2021#survey-info for the ABS. Microbusinesses are a small but important segment of business R&D and innovation. See Anderson and Kindlon (2019) and Knott and Vieregger (2020).For more information, see https://ncses.nsf.gov/surveys/business-enterprise-research-development/2020#survey-info for the BERD Survey and https://ncses.nsf.gov/surveys/annual-business-survey/2021#survey-info for the ABS. Microbusinesses are a small but important segment of business R&D and innovation. See Anderson and Kindlon (2019) and Knott and Vieregger (2020).}

The largest proportion of R&D by businesses with 10 or more domestic employees is performed by the manufacturing sector (54% in 2021) (Table RD-6),^{​At the same time, the U.S. R&D manufacturing share has declined over the years. See BERD Survey Table 59, Domestic R&D paid for by the company and others and performed by the company, by industry and company size: 2008–21, available at https://ncses.nsf.gov/surveys/business-enterprise-research-development/2021#data.At the same time, the U.S. R&D manufacturing share has declined over the years. See BERD Survey Table 59, Domestic R&D paid for by the company and others and performed by the company, by industry and company size: 2008–21, available at https://ncses.nsf.gov/surveys/business-enterprise-research-development/2021#data.} whereas 88% of microbusiness R&D is performed by the nonmanufacturing sector (Kindlon 2023, Table 4). Figure RD-11 shows the distribution of domestic R&D for the top 5 R&D-performing industries (based on North American Industry Classification System [NAICS] codes) for these two broad size categories. The dominance of nonmanufacturing for microbusinesses is largely driven by the 73% share of R&D by firms classified in professional, scientific, and R&D services (NAICS 54), whereas the share of information (NAICS 51) was 12% for microbusinesses compared with 25% for larger companies. (See Table SRD-3 and Table SRD-4 for detailed company size R&D distribution from these sources.)

The rest of this section focuses on R&D activities by businesses with 10 or more domestic employees from the NCSES BERD Survey. Five industries accounted for 79% of the $602.5 billion of U.S. business R&D performed by these companies in 2021: information (including software publishing) at 25%; chemicals manufacturing (including pharmaceuticals and medicines) at 18%; computer and electronic products manufacturing (including semiconductors) at 17%; professional, scientific, and technical services (including R&D services) at 11%; and transportation equipment manufacturing (including motor vehicles and aerospace products and parts) at 8% (Figure RD-12; Table RD-6).^{​Motor vehicle statistics include but do not separate out electric vehicles.Motor vehicle statistics include but do not separate out electric vehicles.} Machinery manufacturing companies performed another 3%. The latter six NAICS industries are major R&D-intensive or knowledge- and technology-intensive industries covered in the Indicators 2024 report “Production and Trade of Knowledge- and Technology-Intensive Industries” with analysis of output, trade, and GVCs. Indeed, these six industries are among the largest R&D intensive as measured by domestic R&D-to-sales ratio (Table RD-6). At the four-digit NAICS level, the industries with the largest R&D intensities were scientific R&D services (41%), semiconductor and other electronic components manufacturing (20%), pharmaceuticals and medicines manufacturing (16%), and software publishers (13%).

Across industries, close to 90% of U.S. business R&D is funded by the performing company. In the information industry, this share is 99% (Table RD-7). At the other extreme, only 18% of R&D performed by the scientific R&D services industry is funded internally, reflecting contract R&D for other companies, domestic and foreign, and on behalf of the federal government. Domestic company customers funded 54% of the U.S. R&D of this industry, and the federal government funded another 12%. In the manufacturing sector, aerospace products and parts had one of the lowest shares of R&D funded internally (46%). For this industry, the federal government funded 49% of its domestic R&D.

Geographical locations of the performance of U.S. business R&D are not evenly distributed among the states. Of the $602.5 billion of business R&D performed by businesses with 10 or more domestic employees in 2021, California accounted for $211.6 billion, or 35%, in 2021 (Table SRD-5).^{​Statistics on U.S. state trends in R&D, S&E education, workforce, patents and publications, and knowledge-intensive industries are also available in the Science and Engineering Indicators State Indicators data tool at https://ncses.nsf.gov/indicators/states.Statistics on U.S. state trends in R&D, S&E education, workforce, patents and publications, and knowledge-intensive industries are also available in the Science and Engineering Indicators State Indicators data tool at https://ncses.nsf.gov/indicators/states.} The next-largest shares in 2021 were for Washington (8%); Massachusetts (7%); Texas (5%); and New York, New Jersey, and Michigan (4% each).^{​Selected below state–level statistics are also available from the NCSES BERD Survey (Shackelford and Wolfe 2019). For upcoming statistics on regional R&D within GDP accounts, see https://www.bea.gov/data/special-topics, and for more on R&D investment in U.S. GDP statistics, see Moris (2019) and Moylan and Okubo (2020).Selected below state–level statistics are also available from the NCSES BERD Survey (Shackelford and Wolfe 2019). For upcoming statistics on regional R&D within GDP accounts, see https://www.bea.gov/data/special-topics, and for more on R&D investment in U.S. GDP statistics, see Moris (2019) and Moylan and Okubo (2020).}

R&D in critical and emerging technologies, such as semiconductors, artificial intelligence (AI), synthetic biology, biomanufacturing, and other advanced manufacturing processes, contribute to economic competitiveness and national security (DOD/DSB 2022; NSTC 2022).^{​R&D-intensive manufacturing industries may engage in advanced manufacturing and intelligent manufacturing. Examples include additive or nano-based manufacturing and biotechnology and biomanufacturing. For additional information, see Brocal, Sebastián, and González (2019) and President’s Council of Advisors on Science and Technology (2020).R&D-intensive manufacturing industries may engage in advanced manufacturing and intelligent manufacturing. Examples include additive or nano-based manufacturing and biotechnology and biomanufacturing. For additional information, see Brocal, Sebastián, and González (2019) and President’s Council of Advisors on Science and Technology (2020).} This section covers U.S. business R&D by the semiconductor manufacturing industry, followed by analysis of software, AI, nanotechnology, and biotechnology R&D across industries.^{​Companies could report expenditure on the same R&D project in one, more than one, or no technology category.Companies could report expenditure on the same R&D project in one, more than one, or no technology category.} (Federal R&D funding initiatives in some of these areas are covered in the next section.)

Semiconductors or computer chips are critical components for applications in AI, quantum computing, autonomous or electric vehicles, and 5G communications (CRS 2020b, 2023c). Semiconductor production occurs along GVCs comprising R&D, engineering, and design; fabrication; and assembly, testing, and packing stages (CRS 2023c). Modular production and cost advantages in Asia facilitated the separation of design and production starting in the late 1970s and early 1980s with the emergence of chip foundries in Taiwan and other Southeast Asian locations performing contract manufacturing for design-only or fabless companies in the United States and other countries (Kuan and West 2023).

In the United States, semiconductor and other electronic components manufacturing is one of the most R&D-intensive industries, as highlighted earlier. In 2021, semiconductor business R&D increased 9.8% in current U.S. dollars to $47.4 billion after increasing 22.8% in 2020 (Table RD-8). The share of semiconductor manufacturing within overall U.S. computer manufacturing R&D was 47% in 2021 after fluctuating around 40% since 2008.

U.S. business R&D performance focuses on key areas of interest across a wide variety of industries (Table RD-9; Table SRD-6). Software R&D, over half of which is performed in the information services industry, is an increasingly large technology area of U.S. business R&D expenditures. In 2021, software R&D accounted for $257.0 billion, or 43% of $602.5 billion.^{​This share was 32% in 2016 and 20% in 2006 (Moris 2019).This share was 32% in 2016 and 20% in 2006 (Moris 2019).} In 2021, a separate 5% ($28.9 billion) was classified by businesses as R&D specifically devoted to AI applications. The professional, scientific, and technical services industry, which includes scientific R&D services, performed 19% of U.S. business R&D in AI in 2021. Biotechnology R&D accounted for 17% of total U.S. business R&D in 2021. Within R&D performed by pharmaceuticals and medicine manufacturing, 79% was classified as biotechnology. For its part, nanotechnology R&D accounted for 5% of total U.S. business R&D. Within semiconductor manufacturing R&D and semiconductor machinery manufacturing R&D, however, nanotechnology focus accounted for 50% and 43%, respectively.