OECD Countries Spend More on Research and Development, Face New Challenges


23/12/2004 - OECD countries are taking more seriously the need to invest in research and development as a means to boost economic performance and remain competitive in the face of rapid growth in capabilities in countries such as China and Israel, according to the latest edition of the OECD's Science, Technology and Industry Outlook.

China doubled its spending on research and development between 1995 and 2002, calculated as a percentage of GDP, from 0.6% to 1.2% of GDP. Over the same period, Israel increased its spending from 2.74% to 4.72% of GDP, a ratio higher than that of any OECD country. By comparison, overall spending in OECD countries on research and development rose only moderately in proportional terms, to 2.26% of GDP from 2.09% in 1995, but it declined from its peak in 2001 of 2.28% of GDP. 

Businesses in Japan and in the European Union increased their levels of R&D in 2002, to 2.32% and 1.17% of GDP respectively, up from 2.12% and 1.15% in 2000. But spending by US firms fell to 1.87% from more than 2% in 2000. These figures remain above their levels of 1995, when Japanese firms spent the equivalent of 1.89% of GDP on R&D, while EU firms spent 1.06% and U.S. firms 1.80% of GDP. See table.

Looking ahead, a number of countries have set long-term targets for increasing R&D spending, with Austria aiming for 2.5% of GDP by 2006, Germany 3.0% by 2010, and the UK 2.5% by 2014. Canada has set a target of being among the top five investors in R&D among OECD countries, and Korea has committed to doubling its investment between 2003 and 2007.

To make the most of these growing investments, the 2004 edition of the OECD's Science, Technology and Industry Outlook says, OECD countries will need to address a number of challenges:

  • Driving innovation in the service sector -- This sector, covering a range of activities from wholesale and retail trade, transport and communications and business services to finance, insurance, real estate and health care, accounts for the largest share of the economy across the OECD, creating more jobs than manufacturing between 1990 and 2001. Yet relative levels of innovation remain below those of manufacturing. The OECD report urges governments to strengthen links between service firms and public research institutions; improve worker training education; direct research to better suit the needs of particular service industries; and help service firms use technology more effectively. Several countries, including Denmark, Finland, Ireland and Norway, have launched such initiatives; others could learn from their experience.
  • Tapping the expanding potential of multinational enterprises  -- Affiliates of multinational enterprises play a growing role in the economies of OECD countries. Between 1995 and 2001, the share of manufacturing output and employment in foreign affiliates rose in all OECD countries except Germany and the Netherlands, contributing to productivity growth in home and host countries. Their share of R&D is also growing. In 2001 foreign affiliates accounted for 15% to 20% of total manufacturing R&D in France, Germany and the United States; between 30% and 40% in Canada, the Netherlands, Spain, Sweden and the United Kingdom; and more than 70% in Hungary and Ireland. The OECD report recommends governments to take further action to benefit from globalization, such as by enhancing their countries' attractiveness to foreign investors and strengthening links with R&D institutions in other countries.
  • Reforming public research systems -Some countries have already acted in this direction, but more can be done. Denmark, Japan and the Slovak Republic have given universities more autonomy and made it easier for them to work more closely with industry. Norway and Switzerland recently introduced laws to make it easier for public research institutions to own and market intellectual property, and Iceland and Finland are preparing similar legislation. Governments are increasingly looking to public/private partnerships to better link public research to national needs. Several are taking action to increase supplies of skilled scientists and engineers.

For further information, journalists are invited to contact the OECD's Media Relations Division (tel. 33 1 45 24 97 00). Additional information on the publication and how to obtain a copy is available here


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