Analysis finds software accounts for nearly one-third of business R&D, up 60 percent over 10-years

Software plays an increasingly large role in private sector research and development (R&D) expenditures, according to new research from the National Science Foundation’s (NSF) National Center for Science and Engineering Statistics (NCSES) and the Bureau of Economic Analysis (BEA). Based on a recent change in how the BEA treats software R&D in its calculations for gross domestic product (GDP) and other metrics, the analysis finds that the share of business R&D coming from software increased from 20 percent in 2006 to 32 percent in 2016, a 60 percent increase. The authors also look at longer-term trends in business R&D expenditures on software, as well as an analysis of software R&D in manufacturing and non-manufacturing industries.

As can be seen in the chart above, most business R&D is in manufacturing industries, and manufacturing industries continue to make up the majority of the growth in overall business R&D investment. The majority of software R&D is performed in non-manufacturing industries. Although manufacturing industries represent a relatively small portion of overall software R&D, this spending grew by nearly 13 percent per year from 2006 to 2016, more than three times as fast as overall business R&D expenditures.

In addition to growing as a share of business R&D, software development has also grown considerably as a share of intellectual property (IP) products since 1959. Tangible research and development went from more than 80 percent of all IP products during the 1960s to roughly 55 percent during the most recent two decades. Software grew from less than 10 percent of all IP products during the 1960s to 1970s to more than 30 percent during the most recent two decades. Investment in entertainment, literary, and artistic products accounts for the remainder of IP products.

The new updates from the BEA will change the data for future renditions of the NSF NCSES Business Research and Development Innovation Survey (BRDIS). For updates, visit the BRDIS homepage, or stay tuned to the Digest for more details.