Appendix A:
Spending for Research and Development and for Education
Total public and private spending on research and development (R&D) is currently about 2.6 percent of gross domestic product (GDP) (see Figure A-1).1 In fiscal year 2007, the federal government’s budget authority for the conduct of R&D totaled $135 billion, slightly less than 1 percent of GDP. The government spent an additional $3.6 billion for acquisition and construction of R&D facilities and equipment.
U.S. R&D Spending as a Percentage of GDP, 1953 to 2006
Sources: Congressional Budget Office and National Science Foundation.
Note: R&D = research and development; GDP= gross domestic product.
About $78 billion of the $135 billion went to the Department of Defense, and 92 percent of that spending was for developing programs and systems that support national defense. Conversely, 84 percent of the rest of the federal government’s spending of $57 billionwent to basic and applied research. During the past 20 years, federal funding has typically represented between 40 percent and 50 percent of all research funding nationwide. Except in the case of the Department of Defense and other agencies where R&D is linked to an explicit mission, economists generally view federal funding of research more favorably than development; even though research might not be conducted with a specific commercial purpose in mind, the knowledge it produces has large potential for wider use, both by other researchers and in later commercial endeavors. Still, economic returns are difficult to measure because the resulting progress can be difficult to discern and the economic payoff might take years or even decades to become clear.
The life sciences account for more than half of federal spending on research. Although some observers have attributed high rates of return to research in the life sciences, others state that there are benefits to supporting a wide range of scientific fields because researchers reach across disciplines for new ideas and tools. In the past decade, as more than 40 percent of federal research funding has gone to university researchers, federal laboratories have seen their share fall to near 20 percent, and federally funded R&D centers have received about 15 percent. Industry and nonprofits account for the rest.
Besides supporting increases in knowledge, federal funding of academic research also contributes to the education of the next generation of researchers: In 2005, more than 55,000 science and engineering graduate students received financial support through federally funded research assistantships.
The United States spends more than 7 percent of its GDP on elementary, secondary, and postsecondary education (see Figure A-2). State and local governments provide about 75 percent of the funding, mostly for elementary and secondary education. The federal government pays about 12 percent, about two-thirds of which goes to elementary and secondary schools, primarily in the form of grants distributed by states. The rest is mostly for student financial aid for postsecondary education. The remaining 13 percent of the funds come from families and other private sources. Families often pay part of the cost of the higher education of their children, and some families pay tuition to private elementary and secondary schools.
Expenditures by Educational Institutions as a Percentage of GDP, 1949 to 2005
Sources: Congressional Budget Office and Department of Education.
Note: GDP= gross domestic product.
On average, the private rate of return on investment in education is estimated to be about 10 percent. In addition, as with other forms of capital, investment in education can produce benefits for the larger economy and for society that exceed those to the individual student. Although the spillover benefits of education are most easily documented in developing countries, some economists believe that even in developed countries, increasing the educational attainment of the population fosters productivity growth—for example, by increasing the body of knowledge that makes up modern science, technology, and management. To the extent they exist, such effects could provide an economic rationale for investments in education. Research has suggested significant social returns on investment in high-quality early-childhood education, in the form of fewer retentions in grade, higher achievement, less involvement in criminal activity, and lower rates of participation in welfare programs.2
See Congressional Budget Office, Federal Support for Research and Development (June 2007).
See James J. Heckman and Dimitriy V. Masterov, The Productivity Argument for Investing in Young Children, Working Paper 13016 (Cambridge, Mass.: National Bureau of Economic Research, April 2007); and Art Rolnick and Rob Grunewald, Early Childhood Development: Economic Development with a High Public Return, Federal Reserve Bank of Minneapolis (December 2003).
