SSTI examines state R&D investment as a share of state GDP, 2009-2018

Industry investment in research and development (R&D) indicates, literally, how invested each state’s businesses are in creating new products and processes. To better-understand industry’s commitment to innovation, business R&D can be viewed as a percentage of each state’s private sector gross domestic product (GDP), providing a measure of research intensity. This measure highlights substantial differences in the orientation of states’ businesses toward research, with some states seeing an investment rate of less than 1 percent while others are above 5 percent. The metric further reveals a broad trend that businesses in many states have stagnated their investments in R&D relative to the overall performance of the economy.

There was little change in the ranking of states that have experienced a higher percentage of industry R&D investment as a share of state GDP. The states that experienced a higher level of R&D spending as a portion of their GDP in 2009 have remained in the top percentages in 2018. States such as Michigan, California, and Massachusetts have had business R&D investment that has remained about 3 percent of the state’s private sector GDP throughout the past decade. Likewise, states that entered the 2010s with lower percentages have remained near the bottom; South Dakota, Louisiana, and Mississippi are states that, between 2009 and 2018, had less than 0.5 percent of their state’s private sector GDP represented by industry R&D spending.

In both 2009 and 2018, the United States’ average for industry R&D investment as a share of private sector GDP was 1.6 percent, with the lowest average of the decade being 1.4 percent in 2014. This leveled percentage of industry investment is reflected in the charts for individual states; many never experienced year-to-year percentage changes of more than 0.5 percent between 2009 and 2018.

A handful of states saw business R&D intensity increase relative to prior years. The largest percentage point increases between 2017 and 2018 include Idaho (from 2.7 to 3.7 percent), Massachusetts (5.0 to 5.4 percent), Missouri (2.0 to 2.6 percent), New Hampshire (1.9 to 3.4 percent), New Jersey (3.2 to 3.7 percent), North Carolina (2.3 to 2.5 percent), Oregon (3.9 to 2.5 percent), and Washington (4.7 to 6.0 percent).

Few states’ business sectors have shown large declines in R&D investment, with the largest drops in percentage between 2017 and 2018 being Connecticut (from 3.6 to 3.0 percent) and Georgia (1.3 to 1.0 percent). Alaska experienced a noticeable drop as well (from 2.0 percent in 2017 to 0.1 percent in 2018), however this was due to a higher-than-average level of R&D investment within the state throughout 2017, with 2018 representing a return to a percentage more in line with their historical norm.

Business R&D statistics, provided by the National Science Foundation, can be found here. SSTI’s analysis of state business R&D performance between 2009 and 2018 can be accessed here. State GDP data is drawn from the Bureau of Economic Analysis.