And The King of R&D Spending Is

By Tim Begany | September 01, 2011 AAA
And The King of R&D Spending Is

If you had to guess which country spends the most on research and development (R&D), which would you pick? Fast-growing China, India or Brazil, maybe? With all the talk about the decline of the United States, you'd think one of those countries, or some other up-and-comer, would be the right choice.

But you'd be wrong - by a long shot.

Although some say China will replace the U.S. as the world's largest economy in as few as five years - and that remains to be seen - the U.S. is still by far the king of R&D spending in straight money terms. By the end of the year, the U.S. will have put an estimated $405.3 billion toward R&D, more than two-and-a-half times the $153.7 billion of runner-up China. (To learn what the benefits of R&D are, check out R&D Spending And Profitability: What's The Link?)

TUTORIAL: Economics Basics

Japan is expected to come in third right behind China, spending about $144.1 billion on R&D this year. And what about India and Brazil? Experts predict they'll be No.8 and No.11, respectively, allocating $36.1 billion and $19.4 billion each for R&D in 2011.

Surprisingly, though, none of the countries mentioned so far is expected to be this year's top dog in R&D spending as a percentage of gross domestic product (GDP), the monetary value of all finished goods and services produced within a country during a specific time period. That honor will likely go to Israel, where R&D expenditures are projected to account for 4.2% of GDP in 2011.

Here are this year's top five countries in projected R&D spending as a percentage of GDP, along with a few details on where they're focusing their R&D dollars.

Israel

Israel's 2011 R&D expenditures is $9.4 billion or 4.2% of its GDP. The main areas of R&D spending are technology infrastructure, basic infrastructure (e.g., roads, railways and energy sources), environmental science and space science. Israel also invests heavily in various types of engineering, such as agricultural, hydraulic, military and biomedical engineering.

Japan
For 2011, Japan's R&D expenditures will be $144.1 billion, which translates into 3.3% of its GDP. Japan's main areas of R&D spending include energy conservation and new energy sources, housing, robot technology, life sciences, telecommunications, nanotechnology, infrastructure and frontiers (space and the oceans). Not surprisingly, the March 2011 earthquake that resulted in radiation leakage from the Fukushima nuclear power station has been a key catalyst in Japan's search for new energy sources.

Sweden
Sweden's 2011 R&D expenditures is $11.9 billion, or 3.3% of its GDP. The main area of R&D spending is on human capital, communications technologies, university education and vocational training. Like many developed countries, Sweden puts a lot money toward medical research, particularly for cancer and diabetes. It also spends heavily on climate-related research, especially as it pertains to sustainable energy and natural resource use.

Finland
In 2011, Finland will spend $6.3 billion in R&D or 3.1% of its GDP. The bulk of the spending is on high-quality, cost-effective health care delivery, improved diagnostic systems, better HIV and cancer therapies and the advancement of nutrition. Finland has been focusing a lot on high-tech areas, too, like mobile communications technologies and "cleantech" technologies that mitigate global warming through emissions reductions and other measures.

South Korea
South Korea's 2011 R&D expenditures total 3.0% of its GDP or $44.8 billion. The main areas of R&D spending are on pharmaceuticals, environmental research, semiconductors, wireless technology, telecommunications equipment and computers, among other areas. Notably, South Korea has been stepping up military R&D as well. On August 1, for example, it announced a joint effort with Indonesia to develop fighter jets, presumably as a deterrent to its rival North Korea.

The Bottom Line
R&D as a percentage of GDP can be an important piece of information for investors. Countries that lead the way in R&D spending tend to display the strongest long-term economic growth. Strong economies usually provide the best investment opportunities.

You probably noticed the U.S. isn't in the top five. In fact, the U.S. placed No.6, allocating an estimated 2.7% of GDP to R&D in 2011. It may not be No.1, but it's right up there near the top - a hint that the U.S. economy still has plenty of life left in it with many excellent long-term investment opportunities left to offer. (For more on information on research and development, see Buying Into Corporate Research & Development (R&D))

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