ECONOMIC REPORT OF THE PRESIDENT

Figure 5-9
Gross Domestic Expenditure on Research and Development
Percent of GDP
(R&D), 2013
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Note: Data for South Africa and Switzterland are not available for 2013 and so are instead
displayed for the most recent available year.
Source: OECD Main Science and Technology Indicators (2015).
investments in R&D generate help lower costs and boost productivity, and
the firms that these investments spawn compete with established firms, further
driving innovation and productivity growth (Griliches 1986; Griliches
1992; Jones 2002; Jones and Williams 1998).
Recent Trends in Patenting
Although innovation is notoriously difficult to quantify, patents provide
one measure of innovative activity. The link between patent grants and
aggregate productivity growth is tenuous, because patenting can be driven
by numerous factors, including the budget of the U.S. Patent and Trademark
Office (Griliches 1989). Thus, while the number of new patents granted has
increased over the past several decades (Figure 5-10, right axis), the extent
to which this trend is indicative of current or future productivity growth is
unclear.
Recent academic findings at the firm level, however, suggest that
higher levels of patenting are associated with higher total factor productivity.
For example, Balasubramanian and Sivadasan (2011) find evidence that
a firm’s productivity increases following its first patent. The U.S. Census
Bureau and U.S. Patent and Trademark Office have started to link patent
application data to administrative data on firms and workers. Initial research
using this data indicates that most patenting firms are small, and that firms
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