Business research and development activity is crucial for high-tech and high-growth firms and is therefore an important element of a regional economy.
There are many ways that policymakers can usefully assess a region’s business R&D activity, including the value of R&D performed by companies, spending at institutions of higher education, breakdowns by company size or sector. Raw activity levels are important, but it is also useful to understand these metrics on a proportional basis.
The following graphic compares two methods of accounting for the size of the state’s overall business activity to help understand its R&D performance: spending as a share of gross domestic product (GDP) and dollars per employee engaged in R&D.
We can see that, for most states, the two metrics are fairly well in-line. California rates highly in both metrics (6.3% intensity and $441,541 per employee), and Louisiana has low scores on both (0.2% and $111,267). Idaho is almost exactly at the U.S. total rates with a state intensity of 2.5% and R&D per employee of $296,000.
Some states are well off this axis. New Mexico has a performance-to-GDP rate of just 1.4% and yet spends $467,700 per R&D employee. On the surface, this indicates that relatively few of New Mexico’s companies conduct R&D, and those that do are largely in expensive, low-staff sectors. Michigan has a strong intensity rate of 4.0% but a modest $230,231 per employee spend. The data suggest Michigan has relatively broad participation in business R&D performance, and that this activity is in staff-intensive sectors (or else is not quite as productive as R&D in many other states).
We can use these measures to identify interesting and suggestive facts about a region’s economy, but we need a deeper dive into additional data and/or a qualitative assessment of a region to know enough to begin planning effective policies or initiatives to shape business behavior in a useful direction. For example, looking at per-sector data reveals that 2/3 of New Mexico’s business R&D spending in 2022 was in semiconductors, and the majority of Michigan’s business R&D is performed by large transportation manufacturers—facts that seem to align with the quick read of the data in the graph.
Download the data used for this article.
Interested in learning more about your region’s R&D activity? Excel Regional Solutions can produce a custom analysis that will give you a better handle on existing activity and whether you can help produce stronger outcomes.