reaching a level of 2.8 percent in 1985 

 and 1986 (chart 2)} In contrast, the 

 U.S. ratio, which was 2.8 percent in 

 1965, steadily declined to a low of 

 2.1 percent in 1978; by 1985, it had 

 again risen to 2.7 percent. 



Between 1965 and 1985, the in- 

 crease in Japanese R&D expendi- 

 tures outpaced the growth of the 

 Japanese economy: Japan's average 

 annual rate of increase in R&D was 

 9.3 percent; its GNP growth was 6.0 

 percent. In the United States, R&D 

 efforts expanded at a slightly slower 

 rate than did GNP— 2.5 percent and 

 2.8 percent, respectively. 



Less than 1 percent of Japanese 

 R&D expenditures was devoted to 

 defense purposes in 1985; this is a 

 significant contrast to the 30-percent 

 figure in the United States. Conse- 

 quently, Japan has a higher ratio of 

 nondefense R&D expenditures to 

 GNP (2.8 percent) than does the 

 United States (1.9 percent). Japan has 

 maintained a lead in this indicator 

 since at least 1971 (chart 3). In ab- 



...^LW^v > : ^'^ .&e-f '', d ■'jii^K'^ 



Chart 3. Nondefense R&D/GNP ratios 



Percent 

 M 



1.5 - 



1.0 



0.5 



•••■ \ 



United States 



3.0 



2.5 



2.0 



- 1.5 



I I L 



I I \ L 



1971 



73 



75 



77 79 



Years 



•81 



■83 



'85 '86 



SOURCE; National Science Foundation, SRS, table B-3 



-Japanese reports often give a different ratio be- 

 cause tfiey use only natural science and engineering 

 R&D and/or national income instead of GNP^ 



solute terms, Japan's nondefense 

 R&D expenditures were one-half of 

 U.S. nondefense R&D expenditures 

 in 1985. 



Chart 2. Total R&D/GNP ratios 



Percent 

 3.0 



2.5 



United States 



1.0 



0.5 



- 1.5 

 1.0 

 0.5 



J I I L 



J_J L 



J I L 



J L 



1965 '67 '69 71 73 '75 77 



Years 



SOURCE National Science Foundation, SRS, table B-2 



79 '81 



'83 '85 '86 



r&d expenditures 

 by source and 

 performer 



The Japanese Government's 

 funding of R&D is substantially less 

 than that of industry, and— al- 

 though steadily increasing — it has 

 not kept pace with the growth in 

 industrially funded R&D. From 1970 

 to 1985, government R&D funding 

 increased at an average annual rate 

 of 5 percent while industrial funding 

 increased at a rate of 9 percent. Also, 

 in 1970, the government supported 

 29 percent of all R&D, but by 1985 

 its share had decreased to 21 percent 

 (chart 4). This decline is attributable 

 both to Japan's strict deficit reduc- 

 tion policy and to the growing rel- 

 ative share of industrial R&D 

 funding. Nevertheless, the govern- 

 ment allowed a higher growth rate 

 for R&D support than for many other 

 program areas. 



Compared with the United States, 

 the Japanese Government supports 

 a smaller proportion of national R&D 



