International Comparison of Research and Development Spending as a Proportion of the Gross Domestic Product
Stefan Hornbostel © October 2006

The GERD indicator (Gross Domestic Expenditure on R&D) is generally used to characterise how much a national economy spends on research and development as a proportion of its Gross Domestic Product and to make this factor internationally comparable. Sometimes, only the Ratio of Business Enterprise R&D – to Business GDP) the BERD indicator of industry-related expenditure is cited (cf. Dominique and Ioannidis 1997).
The data are collected in line with the official standards of the Frascati Manual published by the OECD. This contains recommendations on the definition of statistical units. In contrast to total education and research spending, which includes spending on academic teaching and training, the Frascati Manual (Art. 63) only considers R&D costs to finance "… creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society, and the use of this stock of knowledge to devise new applications". In effect, this means that "basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective. Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, that is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed" (OECD 2006).
National agencies (statistical offices, ministries, etc.) collect the data on spending by national and regional bodies (federal government and the federal states), by companies, and by private institutions working on a non-profit basis. A country's gross domestic spending on research and development therefore includes R&D spending by business and industry, by higher education, by the state, and by private organisations operating on a non-profit basis.
Although the data have been collected on the basis of common standards, they are not fully compatible. Differences in the economic structure of the countries compared, national data collection modalities, and the differing quality of data collection over time influence the indicator value substantially. Not all changes over time therefore represent substantial developments. In some cases, they can also be attributed to changes in the method or form of data acquisition.

March 2000 saw the European Council in Lisbon set the "ambitious" goal of developing the European Union and the member states into the world's most competitive, knowledge-based economic region by 2010 (Lisbon strategy). A key component in this objective is to develop a European Research Area. This is to be achieved in education, innovation and research by raising investments in research and development to 3% of GDP. The halfway report presented in November 2004 showed, especially in comparison with the United States, that the EU would not manage to achieve the key "benchmarks", such as productivity growth rate, employment rate and spending on research and development. Hence, the report recommended a partly new approach for the Lisbon Strategy. The goal of raising R&D spending to 3% of GDP remained unaffected by this.