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Innovation Fact of the Week: Every Dollar a U.S. Multinational Company Invests in Domestic R&D Creates $1.80 in Economic Benefits for its Foreign Affiliates

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When U.S. multinational companies invest in domestic R&D, they create myriad economic returns for their foreign affiliates. These benefits include improved productivity, increased trade with the U.S. headquarters, and induced foreign R&D investment. Economists L. Kamran Bilir and Eduardo Morales estimate that every dollar a U.S. multinational invests in domestic R&D generates an average of $1.80 in knock-on benefits for its overseas affiliates.

This supports economic growth in both developing and developed countries. Kamran and Morales further estimate that for the computer industry alone, if U.S. multinationals’ foreign affiliates could no longer benefit from domestic R&D investment in the United States, then economic output would fall by 2.26 percent in Mexico, 2.40 percent in Indonesia, 8.11 percent in Canada, and 10.54 percent in Finland.

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Innovation Fact of the Week: Global Biotech Crop Production Has Generated Over $130B in Economic Benefits for Farmers

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Between 1996 and 2013, farmers around the world who have adopted biotech crops have increased their incomes by a total of $133.4 billion. Two main factors explain how biotech crops increase farmers’ income. First, pest-resistant plants reduce the need for pesticides, which produces cost savings. Second, disease-resistant crops provide greater yields, thereby giving farmers more product to sell.

Farmers clearly understand the economic benefit of adopting biotech crops. In 2013, the three most commonly grown biotech crops—corn, cotton, and soybeans—covered more than 200 million hectares of land globally, or slightly more than half of the arable land used to grow all varieties of these crops.

Farmers in the developing world have earned more than half of the global economic benefit that biotech crops have generated since the mid-1990s (close to $70 billion), even though developed countries were the first adopters. Given the positive economic benefits, governments should do more to spur research and development of new biotech crop varieties.

For more on

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Innovation Fact of the Week: International Trade in ICT Goods Totaled $2T in 2013

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

The more countries adopt information and communications technologies (ICT), the more growth they experience. Trade agreements such as the Information Technology Agreement (ITA) promote international trade in these technologies, which in turn encourages widespread adoption.

The ITA, first adopted in 1997, eliminated import tariffs on 96 percent of ICT goods exchanged between its 82 signatories. But because technology has progressed rapidly since 1997, the ITA underwent a revision in 2015 to cover more products. As a result, the agreement now covers 99 percent of traded ICT goods.

In 2013, worldwide ICT imports totaled $2 trillion. Of that total, 87 percent was accounted for by signatories of the recently revised ITA. The absence of tariffs in those signatory countries lowered prices for buyers, thereby speeding widespread adoption and the growth that comes with it. Countries that have yet to join the ITA have chosen to forego those benefits and are thus missing an opportunity to spur economic growth.

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Innovation Fact of the Week: China Projected to Pass U.S. R&D Investment by 2025

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Investing in R&D allows countries to generate productivity-enhancing innovations that raise living standards. Depending on whether one measures purchasing power or total output, China’s economy has either already grown bigger than the U.S. economy, or soon will. But in terms of investment in R&D, the figures are clear: China still lags far behind. In 2015, the United States invested $497 billion in R&D (2.8 percent of its GDP) while China invested $373 billion (2 percent of its GDP). China is catching up quickly, though. Based on projections by the Industrial Research Institute (IRI), China’s annual R&D investment growth of between 6 percent and 7 percent outpaces the U.S. R&D growth rate of 3 percent to 4 percent. If these trends hold, China’s total R&D investments will exceed those of the U.S. by 2025.

Still, R&D investments are only as good as the returns they produce, and China appears to have a ways to go in making its R&D investments more productive. In

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Large Firms Actually Are Good At Innovation, Too

It’s become standard fare to believe that small firms innovate and large firms copy. Studies that support this view argue that small firms benefit from a number of factors, such as employees’ close proximity to one another, which fosters easier problem-solving; less red tape, which allows faster decision-making; and higher responsiveness to customer input.

But new research suggests it is not that simple. Business professors Anne Marie Knott and Carl Vieregger, in their recent paper “Reconciling the Firm Size and Innovation Puzzle,” explain how previous studies got the data wrong. Historically, innovation scholars have relied on product or patent counts as a proxy to measure innovation output. But doing so overemphasizes product innovation and underestimates process or incremental innovation—innovation activities that large firms engage in more but rarely involve a patent filing. But the recent development of the National Science Foundation’s Business Research and Development and Innovation Survey (BRDIS) allowed Knott and Vieregger to better analyze incremental and process innovation. Survey enhancements included questions on firm R&D strategy and the outcomes of specific R&D decisions. Product innovation refers to an entirely new product; incremental innovation refers to small

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Innovation Fact of the Week: U.S. IT Companies Contribute Outsized Share of U.S. and Global R&D Investment

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Companies invest in research and development activities to remain at the forefront of technology, stay ahead of their competitors, and create new waves of innovations—and by these measures, the U.S. information technology sector is intensely focused on maintaining its global leadership position. A report from the European Commission’s Joint Research Centre underscores the point. It found that in 2014, the world’s 2,500 largest companies together invested $810 billion in R&D. One-third of those companies were based in the U.S., yet they accounted for approximately 40 percent of the global R&D figure. Why the outsized share? A big reason was that 286 of those U.S. companies were in the R&D-intensive information technology sector.

Not surprisingly, those 286 large IT companies also accounted for an outsized share of total business R&D in the United States—46 percent. This was a far higher percentage than the equivalent share of contributions that the largest IT companies made in other countries and regions. For example, the Chinese IT companies

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Innovation Fact of the Week: U.S. Share of World’s 500 Fastest Supercomputers Down 25% in 5 Years

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High-performance computing represents the leading edge of what is possible when it comes to data crunching. Industry, governments, and academics use supercomputers to solve hugely complex problems, perform advanced data-modeling and analytics, and manage large digital-service infrastructures. This produces advances in everything from weather forecasting to airplane design to energy efficiency. In essence, a supercomputer combines tens of thousands of individual processors performing akin to a symphony orchestra—many diverse units, with their own specific function, working in unison to produce an outcome not possible with just one computer working alone.

Although the United States operated 263 of the world’s 500 most powerful supercomputers in 2011, that number dropped to 199 in 2015—a 25 percent decrease. China has operated the world’s most powerful supercomputer since 2013, and is slowly catching up to the United States overall; it was running 109 of the 500 most powerful supercomputers in 2015. The gradual erosion of the United States’ global leadership position is a potential concern because

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Innovation Fact of the Week: NSF Public-Private R&D Projects Saved $700K in R&D Costs Each in 2014

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Public-private R&D partnerships spur innovation by helping private companies tap into the research capabilities of universities. This allows companies to undertake R&D efforts that would otherwise be too risky or costly for them to conduct on their own, and it allows universities to gain focused resources that help advance various fields of science.

The National Science Foundation’s Industry & University Cooperation Research Program (I/UCRC) is one such partnership. With 262 active projects, the I/UCRC produces substantial cost savings while driving innovation. In fact, when private companies conducted R&D projects through the I/UCRC partnership rather than in-house, they saved an average of $700,000 per project in 2014—up from $500,000 in 2012—thereby freeing up resources to be put to other, more effective uses.

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Innovation Fact of the Week: U.S. Manufacturing Holding Steady at One Production Worker For Every Non-production Worker

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Some argue that outsourcing manufacturing activities to lower-cost countries and adopting labor-saving technologies rapidly displaces production jobs in the United States. In fact, the job makeup of the U.S. manufacturing sector has held quite steady since 2002—manufacturers have employed one production worker for every non-production worker.

In 2002, production workers such as assemblers, technicians, and machine operators made up about half of the U.S. manufacturing sector (52 percent). As of 2015, that share had barely changed at all (51.6 percent). This fact could be attributable to technological disruptions being more labor-enhancing rather than labor-saving—technologies increase worker productivity rather than outright replace workers.

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Innovation Fact of the Week: Latin American Labor Productivity Growing at 90% of U.S. Rate

(Ed. Note: The “Innovation Fact of the Week” appears as a regular feature in each edition of ITIF’s weekly email newsletter. Sign up today.)

Between 1990 and 2013, Latin America’s economy grew faster than the U.S. economy (2.4 percent versus 1.5 percent), yet the region’s labor productivity grew at only 90 percent of the U.S. rate. The reasons for the comparatively strong economic growth included improving educational outcomes, more people participating in the workforce, and workers putting in longer hours—factors that can take an economy only so far. Meanwhile, one factor in the comparatively weak productivity growth was lack of investment in information and communications technology (ICT).

Scholars from the Economic Commission for Latin America and the Caribbean (ECLAC) analyzed labor productivity data from 1990 to 2013 and found that ICT capital contributed to just 6 percent of Latin America’s growth. In the United States, by comparison, 29 percent of economic growth in the same period came from capital investments in ICT. The researchers also found that the Latin American industries that grew the fastest had invested the most in ICT.

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