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Science and Research3.5 International Comparison

3.5.1 Gross expenditure on R&D (GERD) as a share of GDP

Gross expenditure on R&D (GERD) is a key headline measure of a country's aggregate R&D activity. It is the sum of expenditures on R&D across all sectors of the economy, namely the business, government, higher education and private non-profit sectors. Australia's latest GERD estimate published by the ABS is $33.1 billion in 2017-18, which represents an increase of around 6.0 per cent from $31.2 billion in 2015-16.[86] However, Australia's national R&D intensity (GERD as a share of GDP) decreased from 1.88 per cent in 2015-16 to 1.79 per cent in 2017-18, remaining below the OECD average of 2.37 per cent in 2017. In the same period, Israel and South Korea had the highest national R&D intensities, 4.82 per cent and 4.29 per cent, respectively. National R&D intensity in Australia peaked at 2.25 per cent of GDP in 2008-09 and has been declining ever since.[87]

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3.5.2 Gross expenditure on R&D (GERD) as a share of GDP by sector

GERD is the aggregate expenditure devoted to R&D by the business, government, higher education and private non-profit sectors. The largest component is business expenditure on R&D (BERD) and its stagnation in recent years has been a major factor driving the decline in Australia's GERD as a proportion of GDP (or national R&D intensity). The latest BERD to GDP estimate is 0.94 per cent in 2017-18, which represents a continuing decline from 1.18 per cent in 2013-14 and 1.00 per cent in 2015-16.[88] The intensity of government expenditure on R&D (GovERD to GDP) has also been declining but not nearly to the same extent, with latest estimate at 0.18 per cent in 2017-18. Meanwhile, the intensity of higher education expenditures on R&D (HERD to GDP) has remained relatively steady over the last five years or so, with the latest estimate at 0.60 per cent for 2017.[89] With BERD being a key driver of Australia's overall R&D intensity, the GERD to GDP estimate should be interpreted in the context of other information, particularly the cyclical and structural changes affecting the Mining and Manufacturing industries.[90]

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3.5.3 Business expenditure on R&D (BERD) performed in service industries

Across OECD countries, a sizeable and growing share of BERD is performed in service industries. Service industries produce services, as opposed to physical goods. For example, services include accommodation, recreation, health, education, retail, as well as information and communication technologies (ICTs). In Australia, the share of BERD performed by service industries in 2017-18 was around 61.5 per cent — well above the OECD average of 45.5 per cent. Australia ranks 6th of 32 OECD economies on this metric.[91] Only five years earlier, Australian service industries accounted for less than half of total BERD, and a decade ago it was barely above 40 per cent. This broad economic shift towards service industries is occurring across nearly all OECD economies, in part due to the rapid growth in the uptake of new digital technologies. Across OECD economies, ICTs account for a substantial and growing part of BERD, and are disproportionately represented by innovative businesses.[92]

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