all R and D investment funded by the public sector has declined relative to that funded by the private sector, with rough stability in both sectors since about 2001. The total nominal R and D investment in 2007 was $407.5 billion, with business at $269.6 billion, government at $117 billion, universities at $10.6 billion, and nonprofits at $8.4 billion.

Corrado investigated the R and D intensity of eight industries over two time periods: the 1990s and the 2000s. When the R and D intensity of each industry matched Total Factor Productivity (TFP) estimates, as it did for the 1990s, R and D can be interpreted as the sole driver of productivity gains. The 1990s data also show that the computer industry, which was heavily subsidized by federal R and D, outperformed the others. In fact this industry seemed so exceptional that Corrado removed it to look solely at the other seven industries for more general trends. But even excepting computers, R and D appeared to be the sole driver of the productivity gains of the 1990s.

However, the same comparison showed that R and D contributed only 30 percent to the average industry productivity gain in the 2000s, Corrado said. This analysis had too little data to draw firm conclusions, according to Corrado. The analysis also was not able to measure the impacts of investments in the life sciences on human health, though the Bureau of Economic Analyses (BEA) is working to introduce a healthcare satellite account. Also excluded from this analysis was educational services, which may require a geographically localized approach.

The productivity growth of the 1990s suggests that the Internet and demand for networked devices were key drivers of economic activity in that decade, said Corrado. Government played “a classic role” in supporting new technology when several private companies worked with NSF to set up the first T1 telephone data line in 1987. This federal R and D created infrastructure and also helped to close “valleys of death” in the commercialization of research.

Corrado also called attention to the dwindling share of manufacturing in the U.S. economy. What does it mean for policy if the United States moves to an economy characterized by “designed in California, made in China”? she asked.

Finally, she observed that innovation is “more than science.” Studies suggest that firms innovate based on intangibles such as product design, new business processes, and staff knowledge building, not just new research results. An estimate for 2001 put R and D’s share of

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