Which industries do the most R&D? Some suprising US data...

 I was always of the view that R&D was concentrated in a few manufacturing industries: chemicals (including pharma), computer manufacturing and transport equipment (planes, cars etc.).  Not any more.  The  US data  in "Research and Development: U.S. Trends and International Comparisons, NSB-2024-6, May 21, 2024, tells the story.

It's information, in particular R&D into software.  Data from the US shows the below 

 and the accompanying text shows the importance of information (the dark blue line above):

The rest of this section focuses on R&D activities by businesses with 10 or more domestic employees from the NCSES BERD Survey. Five industries accounted for 79% of the $602.5 billion of U.S. business R&D performed by these companies in 2021: information (including software publishing) at 25%; chemicals manufacturing (including pharmaceuticals and medicines) at 18%; computer and electronic products manufacturing (including semiconductors) at 17%; professional, scientific, and technical services (including R&D services) at 11%; and transportation equipment manufacturing (including motor vehicles and aerospace products and parts) at 8% (Figure RD-12; Table RD-6).16 Machinery manufacturing companies performed another 3%.

 

At the four-digit NAICS level, the industries with the largest R&D intensities were scientific R&D services (41%), semiconductor and other electronic components manufacturing (20%), pharmaceuticals and medicines manufacturing (16%), and software publishers (13%)."

 

The report continues:

 

"Software R&D, over half of which is performed in the information services industry, is an increasingly large

technology area of U.S. business R&D expenditures. In 2021, software R&D accounted for $257.0 billion, or 43% of $602.5

billion. In 2021, a separate 5% ($28.9 billion) was classified by businesses as R&D specifically devoted to AI

applications."

That's a staggering number. To repeat from the table, 42% of US R&D spending is on software products or embedded software in the R&D.  See the table below.  Of the manufacturing sector's spend of 326bn, 50bn is on software or related. 

Finally, a useful cross-section snapshot, including the R&D/sales ratio

notes: a Dollar values are for goods sold or services rendered by R&D-performing or R&D-funding companies located in the United States to customers outside of the company, including the U.S. federal government, foreign customers, and the company's foreign subsidiaries. Included are revenues from a company’s foreign operations and subsidiaries and from discontinued operations. If a respondent company is owned by a foreign parent company, sales to the parent company and to affiliates not owned by the respondent company are included. Excluded are intracompany transfers; returns; allowances; freight charges; and excise, sales, and other revenue-based taxes.

b Domestic R&D is the cost of R&D paid for and performed by the respondent company and paid for by others outside of the company and performed by the respondent company.

Update. 

Here are the comparable UK figures on a product basis. I take this from "expenditure on R&D performed in UK businesses: detailed product groups.  2023, from here.  

on Industries, we have 

62. Computer  progr, consultancy and related = 13% 

72. Scientific R&D 25%

21. Pharma mfring 0.9%

26. computer mfring 3.8%

 

Examples of how basic research affects real products

From Gianni de Fraja, paper in the current Rand Journal of Economics
Optimal public funding for research: a theoretical analysis (pages 498–528)

Nelson's early work (1959) already reports many examples of basic research projects that illustrate these characteristics. Among the cases studied more recently, Moody (1995) describes in detail the numerous strands of basic research which allowed the creation of the ubiquitous CD. A Global Positioning System (GPS) navigation system would be far too inaccurate to be of any practical use without corrections of gravitational effects central to the theory of relativity (Haustein, 2009). The abstract mathematical problem of covering a surface with tiles lies at the foundation of our understanding and exploitation of superconductors (Edelson, 1992). Gauss's investigation into the distribution of prime numbers has led, with the contributions of some of the best mathematical minds over the course of two centuries, to the possibility of unbreakable cryptographic codes, without which e-commerce would not be possible (du Satoy, 2003).10

Spending on Science, new paper

We have a new paper on this: Goodridge, P., Haskel, J., Hughes, A., and Wallis, G., (2015). The contribution of public and private R&D to UK productivity growth, Imperial College Discussion Paper, 2015/03, March 2015,   available at https://spiral.imperial.ac.uk:8443/bitstream/10044/1/21171/2/Haskel%202015-03.pdf

The abstract  is

We estimate the contribution of public and private R&D to UK productivity growth on industry data, 1992-2007. R&D affects productivity growth via (1) R&D input, valued at competitive factor shares and (2) (Domar-Hulten weighted) industry TFP growth if there are (a) within-industry spillovers (b) between-industry spillovers and (c) spillovers from public-sector R&D to the market sector. Thus effects depend upon factor shares, spillovers and industrial structure. We estimate all these effects and perform counter-factual experiments such as e.g. additional government spending on the science budget, increased manufacturing R&D spending and the effects of such changes with a different industrial structure.


Our central estimate of the rate of return to public spending on science is  20%.

This the article behind my interview in the FT this weekend, http://www.ft.com/intl/cms/s/2/7da2852c-e3af-11e4-9a82-00144feab7de.html#axzz3XZSthOA9

How many firms are innovating without doing R&D?

Innovation findings from the 2013 Survey.
a. From table 1 we find that in 2013, 45% of firms are innovation active, that is, they product or process innovate, or introduce new processes etc. 
b. From figure 1, we find that 15% of firms are doing R&D.
c. That means, that assuming those 15% of firms report they are innovation active, 66% or 2/3rds of firms are innovating without any R&D. 

The Rate of Return to R&D: teaching notes

Frontier Economics have a nice report on this. Figure 4 in particular is a nice summary of the range of findings on rates of return, see below, and Appendix, P.149 is a good summary of the methodologies to estimate a rate of return.

Various teaching links

1.  As things go a clear definition of R&D from ESA10

Research and development (R&D) is creative work undertaken on a systematic basis to increase the stock of knowledge and use of this stock of knowledge for the purpose of discovering or developing new products, including improved versions or qualities of existing products, or discovering or developing new or more efficient processes of production”.

2. A lovely explanation of intrinsic and extrinsic motivation from  Alex Tabbarrok.

http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html

that focuses on the idea that an incentive scheme does not clash with intrinsic motivation, but gives information about the task to the person presented with it.

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf

Although not central to his work, one of my favorite papers of today’s Nobel prize winner, Jean Tirole, is Extrinsic and Intrinsic Motivation (written with Roland Benabou). In this paper, Tirole and Benabou try to resolve the economist’s intuition that incentives motivate with the idea from psychology that incentive schemes can sometimes demotivate. The psychologists argue that extrinsic motivation can reduce intrinsic motivation (but they are not at all clear on why this should be the case). Tirole and Benabou try to produce a similar finding by arguing that in addition to providing motivation an incentive scheme gives the agent, the one being incentivized, some information and the information may undermine the motivation. - See more at: http://marginalrevolution.com/marginalrevolution/2014/10/jean-tirole-and-intrinsic-and-extrinsic-motiviation.html#sthash.Pq6RExe2.dpuf