R&D intensity

Last updated
Since the 1960s, private businesses in the U.S. have provided an increasing share of funding for research and development, as direct federal funding waned. 1953- Funding for research and development - US.svg
Since the 1960s, private businesses in the U.S. have provided an increasing share of funding for research and development, as direct federal funding waned.

Research and development intensity (R&D intensity) is generally defined as expenditures by a firm on its research and development (R&D) divided by the firm's sales. [2] There are two types of R&D intensity: direct and indirect. R&D intensity varies, in general, according to a firm's industry sector, product knowledge, manufacturing, and technology, and is a metric that can be used to gauge the level of a company's investment to spur innovation in and through basic and applied research. A further aim of R&D spending, ultimately, is to increase productivity (e.g., factor productivity) as well as an organization's salable output.

Contents

Definition and aim of metric

Generally speaking, R&D is seen as a main driver of societal and business innovation.[ citation needed ] The OECD's Frascati Manual describes R&D as "creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications." [3]

R&D expenditure and R&D intensity are two of the key indicators used to monitor resources devoted to science and technology worldwide.[ citation needed ] R&D intensity has been defined as "the ratio of expenditures by a firm on research and development to the firm's sales." [4] William Leonard has described research intensity as "measured usually by ratios of scientific personnel to total employment or by R&D expenditures/sales" to gains in such variables as productivity, profits, sales, and asset status. [5] R&D intensity is therefore a measure of a company's R&D spending toward activities aimed at expanding sector and product knowledge, manufacturing, and technology,[ citation needed ] and so aimed at spurring innovation in and through basic and applied research. [6] [7] Furthermore, it is aimed at increasing "factor productivity and salable output". [5] [ non-primary source needed ][ page needed ]

There are two types of R&D intensity, calculated as follows: [8]

In enterprises and companies

As the National Science Foundation explains: absolute levels of "R&D expenditures indicate the level of effort dedicated to producing future products and process improvements while maintaining current market share and increasing operating efficiency. By extension, such expenditures may reflect firms' perceptions of the market's demand for new and improved technology." However, R&D intensity is the most frequently used measure "to gauge the relative importance of R&D across industries and among firms in the same industry." [9] [ page needed ] Economic research on sixteen industries by William Leonard, "the relation [between investment and gains] appears two years after R&D spending and increases thereafter", although research intensity relates "less effectively" to "manpower ratios [ratios of scientific personnel to total employment]." [5]

Among sectors

R&D intensity differs between different sectors: high-tech sectors (such as aircraft & spacecraft, electrical equipment, and pharmaceuticals) are characterized by the highest R&D intensity, while low-tech sectors (such as food products, iron and steel, and textiles) usually have low R&D intensity. [8] In fact, R&D intensity could be used as the sole indicator to identify high-tech sectors. [8]

By countries and regions

R&D intensity for a country or larger political or geographical entity is defined as its R&D expenditure as a percentage of gross domestic product (GDP) of the entity. Generally speaking, developed countries have higher R&D intensities than developing countries.[ citation needed ] As Eurostat noted in 2013, for a preceding period,[ when? ]

The European Union (EU) is currently lagging behind both the USA and Japan in terms of expenditure on R&D as a proportion of GDP, primarily due to slow relative growth in business R&D expenditure. The European Council set an overall target of 3% of GDP by the year 2010, with industry asked to contribute two thirds of this objective. [10]

GERD can be broken down among four sectors of performance: business enterprise, higher education, government, and private not-for-profit institutions serving households (PNP). [11]

See also

Related Research Articles

<span class="mw-page-title-main">Gross domestic product</span> Market value of goods and services produced within a country

Gross domestic product (GDP) is a monetary measure of the market value of all the final goods and services produced in a specific time period by a country or countries. GDP is most often used by the government of a single country to measure its economic health. Due to its complex and subjective nature, this measure is often revised before being considered a reliable indicator.

<span class="mw-page-title-main">Research and development</span> General term for activities in connection with corporate or governmental innovation

Research and development is the set of innovative activities undertaken by corporations or governments in developing new services or products, and improving existing ones. Research and development constitutes the first stage of development of a potential new service or the production process.

The Frascati Manual is a document setting forth the methodology for collecting statistics about research and development. The Manual was prepared and published by the Organisation for Economic Co-operation and Development.

Science and technology in Israel is one of the country's most developed sectors. Israel spent 4.3% of its gross domestic product (GDP) on civil research and development in 2015, the highest ratio in the world. In 2019, Israel was ranked the world's fifth most innovative country by the Bloomberg Innovation Index. It ranks thirteenth in the world for scientific output as measured by the number of scientific publications per million citizens. In 2014, Israel's share of scientific articles published worldwide (0.9%) was nine times higher than its share of the global population (0.1%).

Productivity is the efficiency of production of goods or services expressed by some measure. Measurements of productivity are often expressed as a ratio of an aggregate output to a single input or an aggregate input used in a production process, i.e. output per unit of input, typically over a specific period of time. The most common example is the (aggregate) labour productivity measure, one example of which is GDP per worker. There are many different definitions of productivity and the choice among them depends on the purpose of the productivity measurement and data availability. The key source of difference between various productivity measures is also usually related to how the outputs and the inputs are aggregated to obtain such a ratio-type measure of productivity.

Eco-efficiency refers to the delivery of goods and services to meet human needs and improve quality of life while progressively reducing their environmental impacts of goods and resource intensity during their life-cycle.

Research funding is a term generally covering any funding for scientific research, in the areas of natural science, technology, and social science. Different methods can be used to disburse funding, but the term often connotes funding obtained through a competitive process, in which potential research projects are evaluated and only the most promising receive funding. It is often measured via Gross domestic expenditure on R&D (GERD).

<span class="mw-page-title-main">Science and technology in Brazil</span> Overview of science and technology in Brazil

Science and technology in Brazil has entered the international arena in recent decades. The central agency for science and technology in Brazil is the Ministry of Science and Technology, which includes the CNPq and Finep. This ministry also has a direct supervision over the National Institute for Space Research, the National Institute of Amazonian Research, and the National Institute of Technology (Brazil). The ministry is also responsible for the Secretariat for Computer and Automation Policy, which is the successor of the SEI. The Ministry of Science and Technology, which the Sarney government created in March 1985, was headed initially by a person associated with the nationalist ideologies of the past. Although the new minister was able to raise the budget for the science and technology sector, he remained isolated within the government and had no influence on policy making for the economy.

The Gerschenkron effect, developed by Alexander Gerschenkron, claims that changing the base year for an index determines the growth rate of the index. This effect is applicable only to aggregation method using reference price structure or reference volume structure. However, if production is measured by "real" tearms, this effect does not exist.

In economics, gross value added (GVA) is the measure of the value of goods and services produced in an area, industry or sector of an economy. "Gross value added is the value of output minus the value of intermediate consumption; it is a measure of the contribution to GDP made by an individual producer, industry or sector; gross value added is the source from which the primary incomes of the System of National Accounts (SNA) are generated and is therefore carried forward into the primary distribution of income account."

Innovation economics is new, and growing field of economic theory and applied/experimental economics that emphasizes innovation and entrepreneurship. It comprises both the application of any type of innovations, especially technological, but not only, into economic use. In classical economics this is the application of customer new technology into economic use; but also it could refer to the field of innovation and experimental economics that refers the new economic science developments that may be considered innovative. In his 1942 book Capitalism, Socialism and Democracy, economist Joseph Schumpeter introduced the notion of an innovation economy. He argued that evolving institutions, entrepreneurs and technological changes were at the heart of economic growth. However, it is only in recent years that "innovation economy," grounded in Schumpeter's ideas, has become a mainstream concept".

The Norwegian paradox is a dilemma of Norway's economic performance where economic performance is strong despite low R&D investment.

Innovation in Malaysia describes trends and developments in innovation in Malaysia.

Science and technology in Botswana examines recent trends and developments in science, technology and innovation policy in this country. The Republic of Botswana was one of the first countries of the Southern African Development Community (SADC) to adopt a science and technology policy in 1998. This was later updated in 2011.

Science and technology in Kazakhstan – government policies to develop science, technology and innovation in Kazakhstan.

<span class="mw-page-title-main">Science and technology in the Netherlands</span> Overview of science and technology in the Netherlands

Science and technology in the Netherlands has an extended history, producing many notable achievements and discoveries in the field. It is an important component in the economic and societal development of the Netherlands. The Dutch government is a driver of scientific and technological progress with science expenditure passing €4.5 billion every year.

<span class="mw-page-title-main">Sustainable Development Goal 9</span> Industry, Innovation and Infrastructure

Sustainable Development Goal 9 is about "industry, innovation and infrastructure" and is one of the 17 Sustainable Development Goals adopted by the United Nations General Assembly in 2015. SDG 9 aims to build resilient infrastructure, promote sustainable industrialization and foster innovation.

Research quotient (RQ) is a measure of companies' innovation capability introduced in the 2008 article, R&D Returns Causality: Absorptive Capacity or Organizational IQ. The measure was originally referred to as IQ (innovation quotient), but because IQ and innovation quotient were already in use commercially, it was referred to as RQ in subsequent work. The motivating argument in the 2008 article was that the main prescription from absorptive capacity — that the more a company spends on R&D, the greater its ability to absorb spillovers from rivals' R&D, seemed implausible. This is because the greater the R&D, the closer a company gets to the knowledge frontier, and accordingly, the less likely it can use spillovers. Instead, Knott proposed and found, it was not that spending more led to higher returns, it was that companies have inherently different returns (RQ), and those with higher RQs spend more.

The decoupling of wages from productivity, sometimes known as the great decoupling, is the gap between the growth rate of median wages and the growth rate of GDP. Economists began to acknowledge this problem toward the end of the twentieth century and the beginning of the twenty-first century. This problem furthermore leads to wage stagnation despite continued economic growth.

References

  1. ↑ Anderson, G.; Moris, F. (2023). "Federally Funded R&D Declines as a Share of GDP and Total R&D". National Science Foundation, National Center for Science and Engineering Statistics. Archived from the original on 3 October 2023. NSF 23-339
  2. ↑ Yiu, L. M. Daphne; Lam, Hugo K. S.; Yeung, Andy C. L.; Cheng, T. C. E. (2020). "Enhancing the Financial Returns of R&D Investments through Operations Management". Production and Operations Management. 29 (7): 1658–1678. doi:10.1111/poms.13186. hdl: 10397/89881 . ISSN   1937-5956. S2CID   216529963.
  3. ↑ OECD (2002) Frascati Manual 2002: Proposed Standard Practice for Surveys on Research and Experimental Development, The Measurement of Scientific and Technological Activities, p. 30, Paris, FR: OECD Publishing, DOI 10.1787/9789264199040-en, see , accessed 13 October 2015.
  4. ↑ Meyer, Peter B. (Editor) (2005). "R&D intensity". Glossary of Research Economics. Retrieved October 13, 2015.{{cite news}}: |author= has generic name (help)
  5. 1 2 3 William N. Leonard (1971). "Research and Development in Industrial Growth". Journal of Political Economy. 79 (2, March–April): 232–256. doi:10.1086/259741. JSTOR   1832108. S2CID   154996996.[ non-primary source needed ][ page needed ]
  6. ↑ Cohen, Wesley M.; Levinthal, Daniel A. (1990). "Absorptive Capacity: A New Perspective on Learning and Innovation". Administrative Science Quarterly. 35 (1): 128–152. doi:10.2307/2393553. JSTOR   2393553.
  7. ↑ Burgelman, Robert A.; Christensen, Clayton; Wheelwright, Steven (2008). "Strategic Management of Technology and Innovation" (5th ed.). New York, NY: McGraw-Hill. pp. 748–772. ISBN   9780073381541.
  8. 1 2 3 "Reviewing the nomenclature for high-technology trade – the sectoral approach". European Commission. Retrieved 13 December 2013.
  9. ↑ NSF (2010). "Research and Development: National Trends and International Linkages (Ch. 4)". Science and Engineering Indicators 2010. Arlington, VA, USA: National Science Foundation, National Center for Science and Engineering Statistics, National Science Board. Retrieved 13 October 2015.[ page needed ]
  10. ↑ Anon. (2013). "Glossary: R&D intensity". Eurostat. Retrieved 13 December 2013.
  11. ↑ OECD (2013). "2. Building Knowledge, 5. R&D expenditure," In OECD Science, Technology and Industry Scorecard 2013, OECD Publishing, Paris, FR: OECD Publishing, DOI 10.1787/20725345 or DOI 10.1787/sti_scoreboard-2013-en, ISSN 2072-5345 or ISSN 1562-983X, ISBN   9789264203181 or ISBN   9789264205000 or ISBN   9789264200739, see or , accessed 13 October 2015.
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.