What Country Spends the Most on Research and Development?

Israel and South Korea are the world’s leading spenders on research and development (R&D) as a percentage of gross domestic product (GDP), according to the latest statistics from the Unesco Institute for Statistics. In pure dollar terms, however, the United States is consistently the largest spender on R&D, followed by China and Japan.

The latest survey from the non-profit Unesco was released in June 2020 and covers the 2018 fiscal year, the most recent year for which information was available. As a percentage of GDP, South Korea and Israel have been trading places for a number of years. This time, Israel edges out S. Korea for first, with Israel spending 4.95% and S. Korea 4.81% of GDP on research and development in 2018.

This compared with the Organization for Economic Co-operation and Development (OECD) average of 2.4% in 2018. The OECD experienced a 1.6% yearly growth in gross expenditure on R&D during the economic crisis years and their aftermath from 2008 to 2012. This growth was half the pace during the period from 2001 to 2008.

Asian Spending Boom

In addition to Korea, looking elsewhere in Asia, China and Japan were also notable performers, spending 3.2% and 2.1% of GDP on research and development, respectively. Part of the reason for the comparative strength of spending by Asian economies compared with the U.S. and Europe reflects the fact that developed economies have faced bigger challenges to their public finances following the global financial crisis. Budgets in many of these countries have leveled off or even declined.

The exception to the Asian spending growth story is Japan, whose fortunes are more correlated with trends seen in Europe and the U.S., rather than those of its fiscally robust neighboring Asian nations.

Within Asia, China is a key driver and is planning to continue ramping up spending. It has pledged to invest 2.5% of its GDP on research by 2020. This would see the country overtake the U.S. as the largest spender in dollar terms.

South Korea and Israel

Significant investment into the information and communications technology (ICT) and electronics sectors has allowed South Korea to become one of the fastest-growing economies in the last decade. The country’s focus on development is also reflected in the fact that globally it ranks third in terms of the share of GDP spent on higher education. The country does face challenges, however. The population is aging, economic growth is becoming more challenging and environmental problems are emerging.

Israel has also seen an extended period of expansion in terms of research and development. The Israeli government has introduced a number of programs over the last few decades to promote growth, and the business sector has also stepped up. One of the programs that has had the biggest impact on Israel's growth in R&D is "Yozma," which is the Hebrew word for initiative. Yozma invested in venture capital funds and drew foreign investors by offering them insurance on risk.

The U.S. Leads Spending by Dollar

From a dollar perspective, the U.S. remains the big spender, still dwarfing R&D spending elsewhere. It spent in the region of $543 billion in 2017. Next up was China, which spent $496 billion, followed by Japan, with $176 billion, Germany with $127 billion and Korea, with $90 billion.

That $543 billion is the most on R&D the U.S. has ever spent, on a pure dollar level, representing around 2.8% of GDP. However, as a percentage of total U.S. federal spending, R&D levels remain near multiyear lows. Federal spending has been declining over the last decade, while business spending has been ramping up. Meanwhile, China has been increasing its R&D spending, doubling its figures between 2008 and 2012 and continuing to expand since then.