Useful Stats: Business R&D continues to rise despite inflationary concerns; federal share wanes

Domestic business R&D expenditures have jumped 15% ($89 billion) from 2021 to 2022. This jump continues a decade-long trend of year-over-year increases, as a new 2022 Business Enterprise R&D (BERD) survey shows. Despite concerns over high inflation, with annual rates of 7% in 2021 and 6.5% in 2022, domestic BERD expenditures have also increased in constant USD each year. Adjusted to 2013 USD, expenditures increased 6% ($32.5 billion) from 2021 to 2022 and 71% ($228 billion) over the past 10 years since 2013.

SSTI sourced data for this article from the BERD survey’s 2013 to 2022 data releases. Inflation adjustments were performed by SSTI using the Federal Reserve Bank of Minneapolis’ Inflation Calculator.

National overview of business R&D

Over the past 10 years, from 2013 to 2022, domestic business R&D expenditures have more than doubled, jumping 114% or $369 billion, with an average gain of 9% per year. Adjusted for inflation, values have increased 71%, or $228 billion in 2013 USD, over the same period, with an average annual increase of 6%. Refer to Figure 1 for more detail on these trends.

Figure 1: Current and constant 2013 domestic business R&D expenditures by year.

Business R&D can be separated into two major categories: paid for by the company and paid for by others. Note that BERD paid for by the company includes foreign subsidiaries of U.S. companies, while paid for by others can be further broken down into federal and other.[1]

While companies pay for the vast majority of domestic BERD performance, its share has increased since 2013. In 2013, companies paid for 82% of the total BERD values, while others funded the remaining 18%. Of that paid for by others, there was an approximately equal split between federal dollars and those from other sources (51% federal, 49% other).

These values and proportions shifted across the proceeding decade, with BERD values paid for by the company increasing to 88%, with the remaining 12% paid for by others. Of the 12% paid for by others, a much smaller 38% came from federal sources, while the remaining 62% came from other sources (see footnote 1). Note that over the 10 years from 2013-2022, Federal BERD increased just 8%, compared to other sources having increased 84%.

In real dollars, the federal share of BERD expenditures decreased an inflation-adjusted 14% over the past decade.

Figure 2 shows BERD paid for by others over the past decade of available data, both in current and constant 2013 USD.

Figure 2: Breakdown of BERD paid for by others, current and constant USD.

With the differences in BERD paid for by the company and others established, the domestic business R&D performance changes can be better analyzed.

Figure 3 below shows a breakdown of domestic BERD expenditures by source of funds and type of R&D for 2013, 2018, and 2022. Clicking on any of the types of R&D (basic, applied, and development) below the title will toggle the data shown.

Figure 3: Domestic BERD expenditures by source of funds and type of R&D.

Since 2013, while all types of domestic business R&D have increased in terms of current dollars, they have not done so evenly. Overall, both basic research and development have risen by greater relative values (120% and 117% respectively) than applied research (97%).

This trend was driven by shifts in R&D paid for by the company, where basic research and development each increased by over 130%, while applied research increased by a relatively smaller 112%.

On the other hand, R&D paid for by others saw a much lower increase in development-type R&D at 40%, compared to a 66% increase in basic and 54% increase in applied research. These increases are much smaller than their paid-for-by-company counterparts due to the shrinking proportion of total BERD values, as discussed earlier.

An inflation adjustment of these trends, seen in the second visual within Figure 3, while showing the same change in terms of proportions, shows just how small the real increase in BERD expenditures across all categories have been. From 2013 to 2022, development-type R&D paid for by others increased just 11%, leagues below that paid for by companies at 85% and the overall increase of 73%. Refer to Figure 3 for more information.

The third visual within Figure 3 showcases the percentage distribution of each type of R&D by source of funds, allowing for the changes to be seen more easily. The major discrepancy between BERD funded by companies and by other sources can immediately be seen, with that paid for by others having a larger focus on basic and applied research, while that paid for by companies has a larger focus on development. Note that due to the nature of inflation affecting each value equally, the proportion remains the same regardless of whether the values are in constant or current dollars.

This article was prepared by SSTI using Federal funds under award ED22HDQ3070129 from the Economic Development Administration, U.S. Department of Commerce. The statements, findings, conclusions, and recommendations are those of the author(s) and do not necessarily reflect the views of the Economic Development Administration or the U.S. Department of Commerce.