Research & Development Expenditure

Total R&D spending is tied to total corporate revenue and, as a result, moves closely with the overall economy. As revenue tightens during a recession, businesses tend to cut back on funding research to develop new products. During economic expansion, increased revenue is often invested back into businesses. The government historically contributed significantly to R&D, but its share declined steadily over the second half of the 20th century. The government spent more on R&D than private companies in the 1950s and represented almost a third of total R&D spending in the 1980s. However, since 2000, the split for total R&D expenditure has hovered around 90.0% private and 10.0% public. The decline in government funding has tied the total expenditure even closer to the business cycle. Total R&D expenditure has trended upward since 1990, even when adjusted for inflation because the real growth of the economy observed over the same period has allowed more companies and larger companies to spend greater amounts on R&D.

R&D expenditure grew strongly in the mid-2000s, as record corporate profits experienced during these years spurred investment in R&D. Yet, the financial crisis reverberated throughout the business world as the economy went into recession, and overall R&D was no exception. However, not all types of R&D felt the downturn immediately. Manufacturing companies, which represent about two-thirds of total private investment, tend to change their R&D spending quickly in response to recessions because they feel changes in consumer demand. Meanwhile, non-manufacturing companies like telecommunications, finance and professional service companies typically lag behind the business cycle by about one year because most of the demand for their goods and services comes from other businesses, meaning they are only indirectly tied to consumer spending. As a result, growth in non-manufacturing R&D increased significantly in 2008. Yet, both types of R&D fell significantly in 2009, causing R&D spending to drop 3.4% to $319.0 billion.

Research and development spending returned to growth in 2011 once the economic landscape began to improve, rising by 1.8%. This continued in 2012 where R&D expenditure rose an additional 2.4%. The return to growth in the overall economy allowed companies to increase their spending on R&D and invest in new technologies. Additionally, this was the beginning of a large influx of tech companies coming to market. The economy began to encounter headwinds in 2019, as increasing geopolitical tensions between the US, China and Europe, as well as general uncertainties surrounding the late-stage economic expansion began to weigh on business sentiment. R&D expenditure decreased by 4.8% in 2020 because of the COVID-19 (coronavirus) pandemic, which has particularly hurt R&D spending by businesses.

R&D spending rebounded in 2021, increasing 6.1%, surpassing pre-pandemic levels. Businesses tapered R&D expenditures because of recessionary fears brought on by rampant inflation during the period. Meanwhile, rising tensions in China forced businesses to reevaluate production locations and find alternative suppliers. Combined with high interest rates, this has limited expenditure growth in the years since as budgets became constrained. Emerging technology, such as artificial intelligence, has partially offset these declines however. As a result, over the five years to 2025, R&D has risen at a CAGR of 3.6%.