An updated OECD R&D indicators showed that government spending on research and development likely stagnated in advanced economies in 2016. This suggests the business sector is set to remain the driving force behind R&D growth for now.
Of the 16 OECD countries for which 2016 data are available, government R&D budgets – which cover expected government-financed research by universities, charities and businesses as well as in government labs – show a rebound in the US but a decline in Japan and eight other countries, painting a flat picture overall. (See the updated data: OECD Main Science and Technology Indicators)
2015 saw a decline of 0.2% in government R&D budgets across the 35 OECD countries, measured in real (PPP) terms. The data available so far on actual government-financed R&D in 2015 appears to support this, showing declines in the US and Japan and a mixed picture elsewhere. Meanwhile, businesses increased their R&D spending by 2.5% in 2015, carrying out 68.8% of all the OECD-area R&D that year.
Total R&D expenditure in OECD countries (the total spent by businesses, government, higher education and other bodies on performing R&D) rose by 2.3% in 2015 in real terms.
Government-financed R&D as defined above has decreased by 2.4% in real terms since 2010, slipping from 31% of total OECD R&D spending in 2010 to 27% in 2014. Government-funded R&D excludes the (off-R&D budget) cost of tax incentives for business R&D, which have been increasing in many countries, though not always enough to offset budget cuts.
In 2016, 29 OECD countries and some emerging economies gave preferential tax treatment to business R&D spending. The share of tax relief in total government support in the OECD area rose from an average of 37% in 2006 to 45% in 2014 as 6.4% of business R&D was directly funded by governments. France, Russia and Korea provided the most support for business R&D as a share of GDP, and the US, France and China provided the most tax support by volume.
Looking at total R&D spending by country, Gross Domestic Expenditure on R&D (GERD) shows China continuing to inch towards the OECD average and Israel reclaiming the top position for R&D intensity from Korea after two years in second place. R&D intensity across OECD countries – total R&D expenditure as a percentage of GDP – remained stable at 2.4% in 2015. R&D intensity also plateaued at 1.95% in the EU area driven by the bloc’s R&D leaders, Germany at 2.9%, France at 2.2% and the UK at 1.7%.
Israel’s R&D intensity inched up to 4.25% in 2015 from 4.23% in 2014, while Japan experienced a slight decline to 3.5% from 3.6%. The US, which spends the most on R&D and accounts for 40% of OECD R&D spending, rose slightly to 2.79% from 2.76%. China reached an intensity of 2.1% in 2015. In volume terms, China’s R&D spending was 81% of the US level in 2015 and 9% above the EU level.