Boosting R&D Investment Vital for Economic Growth

Advanced countries are investing more and more in R&D to keep up with the ever-changing dynamics in global markets.

The latest available data indicate over $497 billion were spent on research and development in the US, more than $400 billion in China and $170 billion in Japan in 2014.

The 10-year average ratio of expenditures on research and development to GDP in the three countries is at 4.2%, 3.6% and 3.4% respectively. The ratio stands at 2.4% in OECD states and the global average is 2.1%.

This is while it is only at 0.4% in Iran, according to Financial Tribune’s sister publication, Tejarat-e Farda economic weekly.

Per capita spending on R&D in the three countries based on purchasing power parity is over $1,500. The average is at $764 in Europe, $700 in Qatar, $344 in Malaysia and close to $200 in Turkey, while in Iran it stands at a mere $50.

Based on statistics from the United Nations Educational, Scientific and Cultural Organization, the major share of R&D spending in advanced countries belongs to experimental research, accounting for over 60% of total investments on R&D, followed by applied research with 20% and basic research with a 10-15% share. In some export-oriented countries like China, the share of experimental research is as high as 85%.

R&D is mainly funded by companies and industrial entities, especially export-oriented ones. In the US, for instance, 71% of the total $497 billion invested on R&D were funded by companies, 11% by the government, 14% by universities and 4% by private non-profit organizations. In Japan, 78% of the total $170 billion were provided by companies.

According to UNESCO, the Iranian government provides 56% of the investments made in R&D while universities provide 33% and companies only shell out 11%.

Since major prominent universities in Iran are state-owned, in practice the significant share of investments is provided by the government directly or indirectly.

Companies and industrial entities’ demand for research is very low in Iran. The issue is mainly rooted in their poor motivation and unwillingness to innovate.

In the field of industry, factors such as trade barriers, monopolized markets, economic entities’ reliance on rent-seeking and direct government support, etc. have taken away the need for companies to compete, because of which the eagerness to invest on R&D has declined. As a result, demand for experimental and applied research has vanished.