Table Of ContentTABLE OF CONTENTS i
PROCEEDINGS OF THE NATIONAL
ACADEMY OF SCIENCES OF THE
UNITED STATES OF AMERICA
Table of Contents
Papers from a National Academy of Sciences Colloquium on Science, Technology, and the Economy
Science, technology, and economic growth 12655–12657
Ariel Pakes and Kenneth L.Sokoloff
Trends and patterns in research and development expenditures in the United States 12658–12663
Adam B.Jaffe
Measuring science: An exploration 12664–12670
James Adams and Zvi Griliches
Flows of knowledge from universities and federal laboratories: Modeling the flow of patent citations over time 12671–12677
and across institutional and geographic boundaries
Adam B.Jaffe and Manuel Trajtenberg
The future of the national laboratories 12678–12685
Linda R.Cohen and Roger G.Noll
Long-term change in the organization of inventive activity 12686–12692
Naomi R.Lamoreaux and Kenneth L.Sokoloff
National policies for technical change: Where are the increasing returns to economic research? 12693–12700
Keith Pavitt
Are the returns to technological change in health care declining? 12701–12708
Mark McClellan
Star scientists and institutional transformation: Patterns of invention and innovation in the formation of the 12709–12716
biotechnology industry
Lynne G.Zucker and Michael R.Darby
Evaluating the federal role in financing health-related research 12717–12724
Alan M.Garber and Paul M.Romer
Public-private interaction in pharmaceutical research 12725–12730
Iain Cockburn and Rebecca Henderson
Environmental change and hedonic cost functions for automobiles 12731–12738
Steven Berry, Samuel Kortum, and Ariel Pakes
Sematech: Purpose and Performance 12739–12742
Douglas A.Irwin and Peter J.Klenow
The challenge of contracting for technological information 12743–12748
Richard Zeckhauser
An economic analysis of unilateral refusals to license intellectual property 12749–12755
Richard J.Gilbert and Carl Shapiro
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TABLE OF CONTENTS ii
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SCIENCE, TECHNOLOGY, AND ECONOMIC GROWTH 12655
This paper serves as an introduction to the following papers, which were presented at a colloquium entitled “Science, Technology, and
the Economy,” organized by Ariel Pakes and Kenneth L.Sokoloff, held October 20–22, 1995, at the National Academy of Sciences in Irvine,
CA.
Science, technology, and economic growth
ARIEL PAKES* AND KENNETH L.SOKOLOFF†
*Department of Economics, Yale University, New Haven, CT 06520; and †Department of Economics, University of California, Los
Angeles, CA 90095
Systematic study of technology change by economists and other social scientists began largely during the 1950s, emerging out of a
concern with improving our quantitative knowledge of the sources of economic growth. The early work was directed at identifying the
importance of different factors in generating growth and relied on highly aggregated data. However, the finding that increases in the stocks of
conventional factors of production (capital and labor) accounted for only a modest share of economic growth stimulated more detailed research
on the processes underlying technological progress, and led to major advances in conceptualization, data collection, and measurement. It also
focused attention on theoretical research, which was clarifying why market mechanisms were not as well suited to allocate resources for the
production and transmission of knowledge as they were for more traditional goods and services. The intellectual impetus that these studies
provided contributed to an increased appreciation by policy-makers of the economic significance of science and technology, and a more
intensive investigation of its role in phenomena as diverse as: the slowdown of productivity advance in the West, the extreme variation in rates
of growth across the world, and the increased costs of health care.
In organizing the National Academy of Sciences colloquium on “Science, Technology, and the Economy,” we sought to showcase the
broad range of research programs now being conducted in the general area of the economics of technology, as well as to bring together a group
of scholars who would benefit from dialogues with others whose subjects of specialization were somewhat different from their own. While the
majority of participants were economists, there was also representation from a number of other disciplines, including political science,
medicine, history, law, sociology, physics, and operations research. The papers presented at this colloquium have been shortened and revised
for publication here.
Expenditure on research and development (R&D) is typically considered to be the best single measure of the commitment of resources to
inventive activity on the improvement of technology. Accordingly, the colloquium began with a background paper by Adam Jaffe (1), which
provided an overview of trends and patterns in R&D activity since the early 1950s, as well as some international comparisons. He discussed
how federal spending on R&D is roughly the same today in real terms as it was in the late 1960s, but that expenditures by industry have nearly
tripled over that period—raising its share of all funding for R&D from roughly 40% to 60%. Basic research has fared relatively well and
increased its share of the total funds for R&D, with universities being the primary beneficiary of the marked shift of federal spending in this
direction. From an international perspective, what stands out is that the historic pattern of United States leadership in R&D expenditures as a
share of gross domestic product has been eroding in recent years; and that the United States devotes a much higher proportions of its R&D
expenditures to defense and to life sciences than do counterparts like Germany, Japan, France, and the United Kingdom.
Following Jaffe’s overview were two talks on projects aimed at improving on our measures of the quantity and value of contributions to
knowledge. The first, by James Adams and Zvi Griliches (2), examined how the relationship between academic research expenditures and
scientific publications, unweighted or weighted by citations, has varied across disciplines and over time. As they noted, if the returns to
academic science are to be estimated, we need good measures of the principal outputs—new ideas and new scientists. Although economists
have worked extensively on methods to value the latter, much less effort has been devoted to developing useable measures of the former. The
Adams-Griliches paper also provides a more general discussion of the quality of the measures of output that can be derived from data on paper
and citation counts.
Adam Jaffe and Manuel Trajtenberg (3) reported on their development of a methodology for the use of patent citations to investigate the
diffusion of technological information over geographic space and time. In illustrating the opportunities for linking inventions and inventors that
the computerization of patent citation data provide, they found: substantial localization in citations, lower rates of citation for federal patents
than for corporate, a higher fertility or value of university patents, and citation patterns across technological fields that conform to prior beliefs
about the pace of innovation and the significance of gestation lags.
National laboratories have come under increasing scrutiny in recent years. Although they perform a much smaller share of United States
R&D than they did a generation ago and have been the target of several “restructuring” programs, these laboratories continue to claim nearly
one-third of the federal R&D budget. In their paper, Linda Cohen and Roger Noll (4) reviewed the historic evolution of the national
laboratories, and explored whether there is an economic and political basis for sustaining them at their current size. They are deeply pessimistic
about the future of the laboratories in this era of declining support for defense-related R&D, portraying them as lacking potential for
cooperative enterprises with industry, as well as political support.
Scholars and policymakers often ask about the significance and effects of trade in intellectual capital. Naomi Lamoreaux and Kenneth
Sokoloff (5) offered some historical perspective on this issue, presenting research on the evolution of trade in patented technologies over the
late nineteenth and early twentieth centuries. Employing samples of both patents and assignments (contracts transferring rights to patents), they
found evidence that a class of individuals specialized in inventive activity emerged long before the rise of industrial research laboratories. This
rise of specialized inventors was
The publication costs of this article were defrayed in part by page charge payment. This article must therefore be hereby marked
“advertisement” in accordance with 18 U.S.C. §1734 solely to indicate this fact.
Abbreviation: R&D, research and development.
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SCIENCE, TECHNOLOGY, AND ECONOMIC GROWTH 12656
related to the increasing opportunities for extracting the returns to discoveries by selling or licensing off the rights, as opposed to having to
exploit them directly. They also found that intermediaries and markets, supportive of such trade in technological information by reducing
transaction costs, appear to have evolved first in geographic areas with a record of high rates of patenting, and that the existence of these and
like institutions may in turn have contributed to the persistence over time of geographic pockets of high rates of inventive activity through self-
reinforcing processes.
The paper by Keith Pavitt (6) was perhaps more explicitly focused on the design of technology policy than any other presented at the
colloquium. Making reference both to the weak association across nations between investment in R&D and economic performance, and to the
paucity of evidence for a direct technological benefit to the information provided by basic research, he argued that the major value of such
activity is not in the provision of codified information, but in the enhancement of capacity to solve technological problems. This capacity
involves tacit research skills, techniques and instrumentation, and membership in national and international research networks. In his view, the
exaggerated emphasis on the significance of codified information has encouraged misunderstanding about the importance of the international
“free-rider” problem and a lack of appreciation for institutional and labor policies that would promote the demand for skills and institutional
arrangements to solve complex technological problems.
One afternoon of the colloquium was devoted to papers on economic issues in medical technology. Many economists have long been
concerned that the structures of incentives in the systems of health care coverage used in the United States have encouraged the development of
medical technologies whose value on the margin is small, especially relative to their cost. The paper by Mark McClellan (7) presented new
evidence on the marginal effects of intensive medical practices on outcomes and expenditures over time, using data on the treatment of acute
myocardial infarction in the elderly from 1984 through 1991 from a number of hospitals. In general, McClellan found little evidence that the
marginal returns to technological change in heart attack treatment (catheterization is the focus here) have declined substantially; indeed, on the
surface, the data suggest better outcomes and zero net expenditure effects. Because a substantial fraction of the long-term improvement in
mortality at catheterization hospitals is evident within 1 day of acute myocardial infarction, however, McClellan suggests that procedures other
than catheterization, but whose adoption at hospitals was related to that of catheterization, may have accounted for some of the better outcomes.
Lynn Zucker and Michael Darby (8) followed with a discussion of their studies of the processes by which scientific knowledge comes to
be commercially exploited, and of the importance of academic researchers to the development of the biotechnology industry. Employing a
massive new data set matching detailed information about the performance of firms with the research productivity of scientists (as measured by
publications and citations), they found a very strong association between the success of firms and the extent of direct collaboration between
firm scientists and highly productive academic scientists. The evidence is consistent with the view that “star” bioscientists were highly
protective of their techniques, ideas, and discoveries in the early years of the revolution in genetic sequencing, and of the significance of bench-
level working ties for the transmission on technological information in this field. Zucker and Darby also suggest that the research productivity
of the academic scientists may have been raised by their relationships with the firms because of both the opportunities for commercialization
and the additional resources made available for research.
The paper by Alan Garber and Paul Romer (9) begins by reviewing the arguments that lead economists and policy makers to worry that
market allocation mechanisms, if left alone, may not allocate an optimal amount of funds to research activity. They then consider the likely
costs and benefits of various ways of changing the institutional structures that determine the returns to research, including strengthening
property rights for innovative output and tax subsidy schemes. The discussion, which is weighted to medical research, points out alternative
ways of implementing these schemes and considers how their relative efficacies are likely to differ with the research environment.
Iain Cockburn and Rebecca Henderson (10) followed with an empirical investigation of the interaction between publicly and privately
funded research in pharmaceuticals. Using a confidential data set that they gathered, they begin by showing that for their sample of 15
important new drugs there was a long and variable lag between the date of the key enabling scientific discovery and the market introduction of
the resultant new chemical entity (between 11 and 67 years). In at least 11 of the 14 cases the basic discoveries were done by public
institutions, but in 12 of those same cases the major compound was synthesized at a private firm, suggesting a “downstream” relationship
between the two types of research institutions. They stress, however, that private sector research scientists often publish their results and
frequently co-author with scientists from public sector institutions, suggesting that there are important two-way flows of information. There is
also some tentative evidence that the research departments of firms that have stronger ties to the public research institutes are more productive.
Steve Berry, Sam Kortum, and Ariel Pakes (11) analyze the impact of the lowering of emission standards and the increase in gas prices on
the characteristics and the costs of producing automobiles in the 1970s. Using their construct of a “hedonic” cost function, a function that
relates the costs of producing automobiles to its characteristics, they find that the catalytic converter technology that was introduced after the
lowering of emissions standards in 1975, did not increase the costs of producing an auto (though it may have hurt unmeasured performance
characteristics). However, the more sophisticated three-way and closed-loop catalysts and the fuel injection technologies, introduced following
the further lowering of emissions standards in 1980, increased costs significantly. They also show that the miles per gallon rating of the new car
fleet increased significantly over this period, with the increases occurring primarily as a result of the introduction of new car models. Though
the new models tended to be smaller than the old, there was also an increase in the miles per gallon in given horsepower weight classes. This,
together with striking increases in patenting in patent classes that deal with combustion engines following the 1973 and 1979 gas price hikes,
suggests a significant technological response, which allowed us to produce more fuel efficient cars at little extra cost.
Since the founding of Sematech in 1987, there has been much interest in whether this consortium of United States semiconductor
producers has been effective in achieving the goal of promoting the advances of United States semiconductor manufacturing technology. The
original argument for the consortium, which has received substantial support from the federal government, was based on the ideas that it would
raise the return to, and thus boost, spending on investment in process R&D by increasing the extent to which new knowledge would be
internalized by the firms making the investments, and increase the social efficiency of the R&D conducted by enabling firms to pool their R&D
resources, share results, and reduce duplication. Douglas Irwin and Peter Klenow (12) have been studying whether these expectations were
fulfilled, and here review their findings that: there are steep learning curves in production of both memory chips and microprocessors;
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SCIENCE, TECHNOLOGY, AND ECONOMIC GROWTH 12657
there exist efficiency gains from joint ventures; and that Sematech seems to have induced member firms to lower their expenditures on R&D.
This evidence is consistent with the notion that Sematech facilitates more sharing and less duplication of research, and helps to explain why
member firms have indicated that they would fully fund the consortium in the absence of the government financing. It is difficult to reconcile
this, however, with the view that Sematech induces firms to do more semiconductor research.
In his presentation, Richard Zeckhauser (13) suggested that economists and analysts of technology policy often overestimate the degree to
which technological information is truly a public good, and that this misunderstanding has led them to devote inadequate attention to the
challenges of contracting for such information. Economists have long noted the problems in contracting, or agency, that arise from the costs of
verifying states of the world, or from the fact that potential outcomes are so numerous that it is not possible to prespecify contingent payments.
All of these problems are relevant in contracting for technological information, and constitute impediments to the effectiveness of invention and
technological diffusion. Zeckhauser discusses how government, in its role as enforcer and definer of property rights in intellectual capital as
well as in its tax, trade, and antitrust policies, has a major impact on the magnitude of contracting difficulties and the way in which they are
resolved. United States policies toward intellectual capital were developed for an era of predominantly physical products, and it is perhaps time
for them to be reexamined and refashioned to meet current technological realities.
As long as authorities have acted to stimulate invention by granting property rights to intellectual capital they have been plagued by the
questions of when exploitation of such property rights comes to constitute abuse of monopoly power or an antitrust violation, and what should
their policies be about such cases. The final paper presented at the colloquium offered an economic analysis of a contemporary policy problem
emanating from this general issue—whether or not to require holders of intellectual property to offer licenses. As Richard Gilbert and Carl
Shapiro (14) make clear, the effects of compulsory licensing on economic efficiency are ambiguous—for any kind of capital. They show that
an obligation to offer licenses does not necessarily increase economic welfare even in the short run. Moreover, as is well recognized,
obligations to deal can have profound adverse consequences for investment and for the creation of intellectual property in the long run. Equal
access (compulsory licensing in the case of intellectual property) is an efficient remedy only if the benefits of equal access outweigh the
regulatory costs and the long run disincentives for investment and innovation. This is a high threshold, particularly in the case of intellectual
property.
1. Jaffe, A. (1996) Proc. Natl. Acad. Sci. USA 93, 12658–12663.
2. Adams, J. & Griliches, Z. (1996) Proc. Natl. Acad. Sci. USA 93, 12664–12670.
3. Jaffe, A. & Trajtenberg, M. (1996) Proc. Natl. Acad. Sci. USA 93, 12671–12677.
4. Cohen, L. & Noll, R. (1996) Proc. Natl. Acad. Sci. USA 93, 12678–12685.
5. Lamoreaux, N.R. & Sokoloff, K.L. (1996) Proc. Natl. Acad. Sci. USA 93, 12686–12692.
6. Pavitt, K. (1996) Proc. Natl. Acad. Sci. USA 93, 12693–12700.
7. McClellan, M. (1996) Proc. Natl. Acad. Sci. USA 93, 12701– 12708.
8. Zucker, L. & Darby, M. (1996) Proc. Natl. Acad. Sci. USA 93, 12709–12716.
9. Garber, A. & Romer, P. (1996) Proc. Natl. Acad. Sci. USA 93, 12717–12724.
10. Cockburn, I. & Henderson, R. (1996) Proc. Natl. Acad. Sci. USA 93, 12725–12730.
11. Berry, S., Kortum, S. & Pakes, A. (1996) Proc. Natl. Acad. Sci. USA 93, 12731–12738.
12. Irwin, D. & Klenow, P. (1996) Proc. Natl. Acad. Sci. USA 93, 12739–12742.
13. Zeckhauser, R. (1996) Proc. Natl. Acad. Sci. USA 93, 12743– 12748.
14. Gilbert, R. & Shapiro, C. (1996) Proc. Natl. Acad. Sci. USA 93, 12749–12755.
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TRENDS AND PATTERNS IN RESEARCH AND DEVELOPMENT EXPENDITURES IN THE UNITED STATES 12658
This paper was presented at a colloquium entitled “Science, Technology, and the Economy,” organized by Ariel Pakes and Kenneth
L.Sokoloff, held October 20–22, 1995, at the National Academy of Sciences in Irvine, CA.
Trends and patterns in research and development expenditures in
the United States
ADAM B.JAFFE*
Department of Economics, Brandeis University and National Bureau of Economic Research, Waltham, MA 02254–9110
ABSTRACT This paper is a review of recent trends in United States expenditures on research and development (R&D). Real
expenditures by both the government and the private sector increased rapidly between the mid-1970s and the mid-1980s, and have
since leveled off. This is true of both overall expenditures and expenditures on basic research, as well as funding of academic research.
Preliminary estimates indicate that about $170 billion was spent on R&D in the United States in 1995, with ≈60% of that funding
coming from the private sector and about 35% from the federal government. In comparison to other countries, we have historically
spent more on R&D relative to our economy than other advanced economies, but this advantage appears to be disappearing. If defense-
related R&D is excluded, our expenditures relative to the size of the economy are considerably smaller than those of other similar
economies.
This paper is an overview of historic trends and current patterns of research and development (R&D) activity in the United States. Most of
the information contained herein comes from the National Science Foundation (NSF) (1). (I am indebted to Alan Rappaport and John
Jankowski of NSF for sharing with me preliminary, unpublished statistics from the 1996 edition of Science and Engineering Indicators, which
had not been released when this paper was prepared.) The background is divided into three sections: (i) overall spending; (ii) basic and
academic research; and (iii) international comparisons.
OVERALL R&D SPENDING
Total spending on R&D in the United States in 1994 was $169.6 billion, and is estimated to be $171 billion in 1995 (all numbers provided
herein for 1994 are preliminary and for 1995 are preliminary estimates). The 1994 number is about 2.5% of Gross Domestic Product (GDP).
For comparison, 1994 expenditure on gross private domestic investment was $1038 billion, of which $515 billion was new producers’ durable
equipment; state and local government spending on education was approximately $400 billion. Thus, among the major forms of social
investment, R&D is the smallest; however, it is a nontrivial fraction of the total.
There are myriad ways to decompose this total spending, including: by source of funding; by performer of the research or development; by
basic research, applied research and development; and by field of science and engineering.
All possible decompositions are beyond the scope of this paper; however, all can be found in some form in ref. 1. Fig. 1 represents an
attempt to summarize the current data along the first two dimensions. The horizontal bars correspond to the four major performers of research:
(i) private firms (“industry”), (ii) federal labs, including Federally Funded Research and Development Centers (FFRDCs), (iii) universities and
colleges, and (iv) other nonprofits. The vertical divisions correspond to the three major sources of funding for R&D, with industry funds on the
left, federal funds in the middle, and other funds (including state and local governments) on the right.
Overall, industry provides about 60% of all R&D funds, and the federal government provides about 35%. Industry performs about 70% of
the R&D, federal labs and universities each perform about 13%, and other nonprofits perform about 3%. By far the biggest source-performer
combination, with just shy of $100 billion, is industry-funded, industry-performed research. Federally funded research at private firms and the
federal labs each account for about $22 billion.† Universities performed about another $22 billion; of this amount, about 60% was funded by
the federal government, about a third was funded by universities’ own funds, state and local governments, or other sources, and about 7% came
from industry. Other nonprofits performed a total of about $6 billion, with the funding breakdown roughly similar to universities.
Fig. 2 provides the same breakdown for 1970 (the picture for 1953 is very similar to that for 1970). It shows a striking contrast, with a
much larger share of funding provided by the federal government, both for the total and for each performer. In 1970, the federal government
provided 57% of total funding, including 43% of industry-performed research. The biggest difference in the performance shares is between
federal labs and universities; whereas the two now have about equal shares, in 1970 the labs performed about twice as much R&D as
universities.
These changes in shares occurred in the context of large changes in the totals. These changes over time are shown in Fig. 3 (performers)
and Fig. 4 (sources of funds). There is an overall reduction in total spending in the late 1960s, followed by very rapid increases in real spending
between 1975 and 1985; this increase decelerated in the late 1980s, and total real spending has fallen slightly since 1991. Fig. 3 shows that the
1975–1985 increases occurred mostly in industry; universities then enjoyed a significant increase in performance share that still continues, with
real university-performed R&D continuing to increase as the total pie shrank in the early 1990s.
The publication costs of this article were defrayed in part by page charge payment. This article must therefore be hereby marked
“advertisement” in accordance with 18 U.S.C. §1734 solely to indicate this fact.
Abbreviations: R&D, research and development; GDP, Gross Domestic Product; FFRDC, Federally Funded Research and
Development Center; NSF, National Science Foundation.
*e-mail:
TRENDS AND PATTERNS IN RESEARCH AND DEVELOPMENT EXPENDITURES IN THE UNITED STATES 12659
FIG. 1. United States R&D funding by performer and funding source; preliminary estimates for 1995 (in billions). “Federal
Labs” includes intramural federal research and university-operated FFRDCs. Industry-operated FFRDCs are included under
federal industry research. “Other” funding sources are state and local governments and institutions’ own funds. Source: Ref. 1
and A. Rappaport and J.Jankowski, personal communication (Division of Science Resource Studies, National Science
Foundation).
Fig. 4 shows that movements in the total over time have been driven by cycles in real federal funding combined with a rapid buildup in
industry spending between 1975 and 1991. Real federal spending peaked at about $60 billion (in 1994 dollars) in 1967, fell to about $47 in
1975, rose to about $73 in 1987, and then fell back to about $61 billion in 1995. Hence, federal spending today is essentially the same as in
1967. (We will see below that the composition of this spending is different today than it was in 1967.) Industry funding increased steadily to
about $36 billion in 1968, was essentially flat until 1975, and then increased dramatically, surpassing federal funding for the first time in 1981,
increasing to about $80 billion in 1985–1986, and then increasing again to about $100 billion in 1991, where it has leveled off. One of the most
interesting questions in the economics of R&D is exactly why industry went on an R&D spending “spree” (2) between 1975 and 1990, and
whether or not the economy has yet or will ever enjoy the benefits thereof. [For an analysis of the effects of this large increase in spending on
the private returns to R&D, see Hall (3).]
FIG. 2. United States R&D funding by performer and funding source for 1970 (in billions of 1994 dollars). Performers and
funding sources are as in Fig. 1. Source: Ref. 1 and A. Rappaport and J. Jankowski, personal communication (Division of
Science Resource Studies, National Science Foundation).
FIG. 3. Total United States R&D by performer, 1953–1995 (in billions of 1994 dollars). The 1994 numbers are preliminary;
1995 numbers are preliminary estimates. Source: Ref. 1 and A. Rappaport and J.Jankowski, personal communication
(Division of Science Resource Studies, National Science Foundation).
BASIC, ACADEMIC, AND FEDERAL LAB RESEARCH
With respect to economic growth, the most important effect of R&D is that it generates “spillovers,” i.e., economic benefits not captured
by the party that funds or undertakes the research. Although there is relatively little concrete evidence regarding the relative potency of
different forms of R&D in generating spillovers, theory suggests that the nature of the research and the research organization are likely to affect
the extent of spillovers. Specifically, basic research, whose output is inherently intangible, unpredictable, and therefore difficult for the
researcher to appropriate, and research performed at universities and federal labs, governed by social and cultural norms of wide dissemination
of results, are likely to generate large spillovers. In my paper with Manuel Trajtenberg for this Colloquium (4), we provide evidence that
universities and federal labs are, in fact, quite different on this score, with universities apparently creating more spillovers per unit of research
output. In this section, I examine trends in basic research and in academic and federal lab research.
Figs. 5 and 6 are analogous to Figs. 3 and 4, but they refer to that portion of total R&D considered basic by NSF. They show a very rapid
buildup in basic research in the Sputnik era of 1958 to 1968, mostly funded by the federal government. Like total federal R&D spending,
federal basic research funding peaked in 1968 and declined through the mid-1970s. It then
FIG. 4. United States R&D by source of funds, 1953–1995 (in billions of 1994 dollars). The 1994 numbers are preliminary;
1995 numbers are preliminary estimates. Source: Ref. 1 and A. Rappaport and J.Jankowski, personal communication
(Division of Science Resource Studies, National Science Foundation).
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TRENDS AND PATTERNS IN RESEARCH AND DEVELOPMENT EXPENDITURES IN THE UNITED STATES 12660
began a period of rapid increase, rising from about $8.5 billion in 1973 to $12.3 in 1985 and to about $17 billion today. Universities have been
a prime beneficiary of the increase in federal basic research spending; basic research spending at universities increased about 50% in real terms
between 1985 and 1995 (from about $9 billion to about $14 billion). Although industry does fund a small amount of basic research at
universities and receives a small amount of federal funding for basic research, industry performance of basic research tracks industry spending
on basic research very closely, increasing from just under $4 billion in 1985 to about $8 billion in 1993, and decreasing thereafter. Overall,
basic research has fared relatively well in the 1990s, increasing its overall share of R&D spending (all sources, all performers) from 15% in
1990 to 17% in 1995.
FIG. 5. United States basic research by performer, 1953–1995 (in billions of 1994 dollars). The 1994 numbers are
preliminary; 1995 numbers are preliminary estimates. Source: Ref. 1 and A. Rappaport and J.Jankowski, personal
communication (Division of Science Resource Studies, National Science Foundation).
Fig. 7 examines the distribution of academic R&D (for all sources of funding, and including basic and applied research and development)
by science and the engineering field. There have not been dramatic shifts over this period in the overall field composition of academic research.
Life sciences account for about 55% of the total, with medical research accounting for about half of life sciences. This apparently reflects a
combination of the high cost of medical research, combined with a general social consensus as to the social value of improvements in health.
(We will see below, however, that the United States is unique in devoting this large a share of public support of academic research to life
sciences.) All of these major categories saw significant real increases in the last 15 years, although at a finer level of detail there has been more
variation.
FIG. 6. United States basic research by source of funds, 1953–1995 (in billions of 1994 dollars). The 1994 numbers are
preliminary; 1995 numbers are preliminary estimates. Source: Ref. 1 and A. Rappaport and J.Jankowski, personal
communication (Division of Science Resource Studies, National Science Foundation).
FIG. 7. Expenditures for academic R&D by discipline, 1981–1993 (in billions of 1994 dollars). Source: Ref. 1 and A.
Rappaport and J. Jankowski, personal communication (Division of Science Resource Studies, National Science Foundation).
Fig. 8 suggests that this relative constancy by discipline masks some underlying changes in the funding from the federal government.
Fig. 8 Lower shows that while all agencies have increased their funding of academic research over this period, the fraction of federal support of
academic research accounted for by the National Institutes of Health increased from 37% in 1971 (data not shown) to 47% in 1980 and 53% in
1995. In the last few years, increases in National Institutes of Health funding (and smaller increases in NSF funding) have allowed total federal
funding of academic research to continue to rise (albeit slowly) despite declines in funding from the Departments of Defense and Energy. The
relatively small share of these two agencies in academic
FIG. 8. Federal lab and federal university funding by funding agency. The 1994 numbers are preliminary; 1995 numbers are
preliminary estimates. Source: Ref. 1 and A. Rappaport and J.Jankowski, personal communication (Division of Science
Resource Studies, National Science Foundation).
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TRENDS AND PATTERNS IN RESEARCH AND DEVELOPMENT EXPENDITURES IN THE UNITED STATES 12661
research funding explains why universities have fared relatively better than the federal labs in the last few years. Fig. 8 Upper shows that
declines in funding from the Departments of Energy and Defense have led to reductions in the total level of real research spending at the federal
labs since 1990. Note that the scales of the two graphs are quite different; the federal government still spends almost twice as much at the labs
as it does at universities, and the Department of Defense is still the largest overall funder of research in the combined lab-university sector.
FIG. 9. International R&D expenditures as percentage of GDP, 1981–1995. Germany’s data for 1981–1990 are for West
Germany. The 1994 numbers are preliminary; 1995 numbers are preliminary estimates. Source: Ref. 1 and A. Rappaport and
J.Jankowski, personal communication (Division of Science Resource Studies, National Science Foundation).
INTERNATIONAL COMPARISONS
It is very difficult to know in any absolute sense whether society should be spending more or less than we do on R&D, in total or for any
particular component. We generally believe that R&D is a good thing, but many other good things compete for society’s scarce resources, and a
belief that the average product of these investments is high does not necessarily mean that the marginal product is high, in general or with
respect to specific categories of investments. While other countries in the world are not necessarily any better than we are at making these
choices, it is interesting to see how we compare, and to note in particular ways in which our activities in these areas differ from those of other
countries.
Fig. 9 shows overall R&D expenditures, as a percent of GDP, for the G-5 countries (United States, Japan, Germany, France, and the
United Kingdom). In general, R&D as a percent of GDP rose in the G-5 over the 1980s and has declined somewhat since. The United States is
near the top of the group,
FIG. 10. International nondefense R&D expenditures as percentage of GDP, 1981–1995. Germany’s data for 1981–1990 are
for West Germany. The 1994 numbers are preliminary; 1995 numbers are preliminary estimates. Source: Ref. 1 and
A.Rappaport and J.Jankowski, personal communication (Division of Science Resource Studies, National Science Foundation).
About this PDF file: This new digital representation of the original work has been recomposed from XML files created from the original paper book, not from the original typesetting files. Page breaks are true to the original; line
lengths, word breaks, heading styles, and other typesetting-specific formatting, however, cannot be retained, and some typographic errors may have been accidentally inserted. Please use the print version of this publication as
the authoritative version for attribution.
