R;D Investment

Economists have studied various effects and trends of technology-based growth since 1980. Some of this literature will be used in the present analysis of R&D growth. The two main categories useful for analyzing R&D investment growth since 1980 are the sources of financing and the sources of performance of R&D. This differentiation is important here partly because some industries, such as aerospace, for example, carry out considerably more R&D than they fund, with the added financing coming from either other industries or government.

Equally important to a general discussion of R&D growth and ultimate microeconomic growth are industries that neither fund nor conduct significant amounts of R&D, but purchase considerable amount of technology in the form of products developed and produced somewhere else. Main Body One of the most noticeable trends in industry-financed R&D since 1980 has been the rapid growth in the nonmanufacturing sector’s contribution. Over the last twenty five years for which data are available, the nonmanufacturing sector’s (for the most part service industries’) contribution grew from 3 percent to 27 percent (Smith and Barfield 97).

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In addition, technology purchased by the service sector from manufacturing is still at least 80 percent of the total technology finance. Therefore, internally produced technology is at the maximum 20 percent of R&D-based technology funding for service industries (Fitzgerald 140). With regard to R&D performance, industry’s investment for R;D performed by the nonmanufacturing (for the most part the service) sector grew considerably in real terms from 1988 to 1991, as this sector developed into much more technology-based (Tassey 135).

Industry’s financing for R&D carried out in the manufacturing sector changed not much in real terms within this same period. Information technology (IT) began the new stage of technology development in the 1980s that revolutionized service industries completely. Selling of IT-based services rose to $134 billion in 1994 and communication services had $265 billion in revenues (Beenhakker 30). Furthermore, private service companies make up only a portion of the extremely large demand for information technology.

Money expended for information technology by the federal government in 1995 increased from $45 billion to $46 billion (Beenhakker 48). Of the $380 billion in R&D expenditures submitted to the 24 Organization for Economic Cooperation and Development (OECD) countries in 1993, 90 percent was spent in just seven. The United States accounts for near 44 percent of the industrial world’s R;D investment (and roughly 28 percent of world funds) (Tassey 145).

Nevertheless, the U. S. rends are indicative of a general decrease in growth rates for real R;D spending and performance in the advanced nations with developed industries. The twofold effects of decline and government acts of restraining budget have resulted in real R;D expenditures stagnating or declining in each of the seven most advanced R;D-performing nations. Therefore, R;D-to GDP ratios have decreased in the 1990s in many European countries, including the United States (from 2. 8 percent to 2. 4 percent) (Tassey 140).