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Useful Stats: US leads the world in GDP, falls behind in R&D intensity

August 03, 2023
By: Conor Gowder

With a GDP of over $23 trillion in 2021, the United States has the world's largest economy, according to the latest available data from the World Bank. Yet, the U.S. falls behind such countries as Israel and Korea when it comes to how much is spent on research and development (R&D) in proportion to GDP. For example, Israel and Korea spend 5.56% and 4.93% of their GDP on R&D compared to the U.S.’ 3.46%.

GDP is the sum of a region’s economic output, measuring economic productivity and innovation capacity. R&D is the process of generating new knowledge to create a novel product, service, or method. This article uses national expenditures on R&D calculated as a percentage of GDP to provide a standardized metric of R&D intensity. Later, a breakdown of the performing sectors of R&D is provided.

Exploring these metrics allows for establishing a benchmark of competitiveness. This article uses data from the World Bank and the Organization for Economic Co-operation and Development (OECD). Data includes GDP, gross domestic expenditure on R&D (GERD) as a percentage of GDP, and GERD by performing sector from 1960-2022 when available.

A nation's growth can be linked to its investment in R&D, for which the GERD/GDP ratio serves as a crucial indicator of a country's commitment to innovation and technological advancement. Countries prioritizing R&D activities are more likely to witness technological breakthroughs, increased productivity, and ultimately experience higher economic growth rates. A high GERD/GDP ratio may signal a nation's dedication to fostering innovation and capitalizing on new opportunities. Thus, the U.S. finishing third may be at risk of underperforming when it comes to innovation.

However, it is critical to understand that a country's GERD is not the sole determinant of innovation capacity or economic competitiveness. Other factors, such as the effectiveness of its R&D investments and the quality of its research institutions, also play critical roles in determining the impact of R&D on a nation's economic growth and innovation potential.

Disparity in nations’ GDP growth rates reveals dynamic global economy

The GDPs of the largest global economies have grown steadily over time, led by the U.S., indicating the expansion of economic output and overall prosperity in many countries.

However, there are some notable exceptions to this trend. Japan’s GDP has leveled off since the mid-1990s, while China has emerged as a rapidly growing power since the early 2000s to become a major player in the global economic landscape.

This disparity in GDP growth among countries widely considered to be at the "top" highlights the dynamic nature of the global economy and the importance of understanding the underlying factors influencing economic productivity. The map below demonstrates how GDP fluctuates among all countries for which data was available, from 1960 and 2022. The time slider provided allows for a quick and easy way to visualize change over time.

Gross domestic expenditure on R&D (GERD) reveals a nation’s level of commitment to innovation

While GDP is an important metric, it is not the only measure of economic well-being. Indexing R&D expenditures against GDP can provide a better picture of a country's innovation potential.

Gross domestic expenditure on R&D (GERD) is a nation’s total R&D expenditures, current and capital, by all domestic companies, higher education institutions, research institutes, government laboratories, etc. Both foreign and domestic R&D dollars are included in the calculation so long as the R&D takes place in the country.

The most recent year of reported data is anywhere from 2019-2022, depending on the country. Israel and Korea have the highest ratios, with GERD accounting for 5.56% and 4.93% of their GDPs, respectively. Other countries, like the U.S., Sweden, Japan, Belgium, Switzerland, Austria, and Germany, also allocate a substantial percentage of their GDP to R&D, ranging from 3.13% to 3.46%.

Over the past 40 years, the GERD/GDP ratio has shown a consistent upward trend in most of the selected countries, with the notable exception of Mexico. Among the nations examined, Israel boasts the highest GERD/GDP ratio, followed by Korea, the U.S., Japan, and Germany. Refer to the below line chart for more details.

Drawing a finer point on where R&D money goes

While the above R&D expenditures help present a general overview of innovation, a breakdown of the performing sectors can provide a more detailed understanding of where innovation is happening. This information can be used to trace the evolution of innovation and to identify emerging trends as the locus of innovation changes.

Each nation’s GERD can be broken down into three major components: government intramural expenditure on R&D (GOVERD), business enterprise R&D (BERD), and higher education R&D (HERD). The visual below provides a useful breakdown of GERD which can be used to visually compare the relative levels of governmental, business, and higher education R&D across nations. The values are indexed to constant USD purchasing-power-parity (PPPs), where 2007 is equal to 100.

GOVERD has historically been responsible for the lion’s share of GERD in most of the countries shown. However, this trend appears to be decreasing over time. The starkest examples of this can be seen in Israel, France, and Canada, where GOVERD accounted for the highest proportion of their nation’s GERD during the earliest years of available data, but are now one of, if not the, lowest contributors to their respective nation’s GERD.

Korea, Japan, Germany, and Spain appear to have retained a stable, fairly even values across GERD sectors, while most other nations have seen decreased GOVERD relative to their BERD and HERD.

Is the U.S. underperforming?

The United States boasts the world's largest economy by GDP, yet its spending on GERD as a percentage of GDP lags behind other countries. This discrepancy raises concerns about potential underperformance in innovation.

While R&D spending is unquestionably important, it is not the sole determining factor of a nation’s innovation capacity. The quantity of R&D means very little if its efficacy and quality is not up to par.

To keep its position as a global leader in innovation, the U.S. must continue to strategically promote R&D investments across sectors. Only while fostering an environment conducive to innovation can the U.S. sustain its position as a global innovation powerhouse.

Click here for the data used in this article.



gdp, r&d, innovation