The Geography of R&D in 2024
- Arda Tunca
- 1 day ago
- 4 min read
In an era of rapid technological change and economic uncertainty, innovation has become the defining axis of global competitiveness for a very limited number of countries and companies.
The 2024 EU Industrial R&D Investment Scoreboard offers a striking view of the global landscape: a world increasingly split between high-intensity innovation hubs and large swathes of underinvestment, including economies with otherwise ambitious growth strategies.
A Concentrated Map: Who Leads?
The scoreboard reveals a highly concentrated geography of innovation. Four economies, the United States, the European Union, China, and Japan, account for the overwhelming majority of corporate R&D investment. Together, firms from these regions dominate the list of the top 2,000 R&D spenders globally, which collectively accounted for €1.257 trillion in 2023, covering more than 85% of business R&D worldwide.
United States:
Home to giants like Alphabet (which topped the global list with €40 billion in R&D spending), the U.S. maintains its dominance in ICT software and health technologies.
U.S. firms benefit from well-developed capital markets, deep university–industry collaboration, and a flexible regulatory environment that encourages risk-taking and innovation though this collaborative foundation has been increasingly weakened under Trump-era policies that deprioritize science funding and academic partnerships.
European Union:
The EU leads in automotive and ICT hardware, with Volkswagen (€22 billion) as its top representative and the only EU firm in the global top 10.
The region faces structural constraints: fragmented markets, lower digital readiness compared to the U.S., and regulatory complexity that often delays commercialization.
China:
China is no longer catching up. It is co-defining the frontier. It shows strong gains in automotive, ICT, and health sectors.
The state-driven model combining strategic investment, domestic market scale, and export orientation continues to deliver. However, concerns remain over IP protection and transparency.
Japan:
Japan remains a significant player in automotive, electronics, and robotics, though its R&D momentum has slowed compared to the other three.
Sectoral Dynamics: Where the Money Goes
More than 75% of global R&D investment is concentrated in four industries:
Automotive: +€25.1 billion in 2023 (+13.2% YoY growth)
ICT Hardware: +8% growth, above its long-term average
ICT Software: Slower growth at 5.6%, the lowest since 2016
Health: 4.9% growth, also at a post-2013 low
These numbers show a shift: while automotive innovation surged, digital technologies are maturing, and health R&D, despite post-COVID momentum, is entering a more stable growth phase.
The underlying driver remains clear: technological convergence. Automotive firms now invest in AI and software as much as in hardware. Health companies leverage big data and biotechnology. ICT firms are crossing into renewable energy, chip design, and mobility.
The global innovation landscape also reflects a sharp divide between state-led and private-sector-driven R&D models. While countries like China channel significant R&D through state-owned or state-backed enterprises, innovation in the U.S. and much of Europe is primarily powered by private firms.
Each model has its strengths: state-led systems enable strategic focus and scale, while private-led systems offer agility and competition. However, long-term success often depends on how well these spheres collaborate, something increasingly strained in polarized political environments.
The Missing Middle: Where Is the Rest?
Despite rising R&D intensity globally, a stark disparity exists in how innovation is distributed. Many emerging markets boast impressive GDP growth but fall short on innovation metrics.
Innovation is not just about patents and laboratories. It drives productivity, technological sovereignty, resilience, and long-term growth. Economies lacking robust R&D ecosystems are more vulnerable to external technological shocks, import dependency, and currency volatility. The innovation gap translates directly into competitiveness gaps affecting trade balances, investment attraction, and employment quality.
Europe’s Innovation Puzzle
While Europe remains a major player, its innovation capacity is beginning to trail behind. The data suggest that if EU firms had doubled their R&D investment in the pre-COVID period, they would have achieved only a 16% gain in labor productivity, well below what U.S. or Chinese firms can attain with similar investment increases.
This points to a deeper problem: declining R&D-to-productivity elasticity. R&D-to-productivity elasticity measures how much a percentage increase in R&D investment translates into a percentage increase in labor productivity. It reflects the efficiency with which innovation spending improves economic output per worker.
In the EU, structural bottlenecks, from limited venture capital to lagging digital infrastructure, dilute the returns of innovation spending.
Elasticity and Regional Divergence
The report includes estimated elasticities showing how R&D translates into labor productivity across regions:
The downward trend in these elasticities is statistically significant in all regions except China.
This suggests that China still maintains a high efficiency in turning R&D investment into productivity gains, underscoring the success of its state-led innovation model.
For Europe and the U.S., the marginal productivity of R&D is declining, pointing to diminishing returns or institutional saturation.
Strategic Recommendations
If innovation laggards want to narrow the gap, piecemeal efforts won’t suffice. What is needed is a comprehensive national innovation agenda anchored in the following pillars:
Institutional Stability: innovation requires long-term vision and predictability. Frequent regulatory shifts discourage investment in intangible assets.
Education and Human Capital: a skilled labor force is the bedrock of R&D. Curricula must emphasize STEM (Science, Technology, Engineering, and Mathematics), critical thinking, and digital fluency.
Public-Private Synergy: government funding should be catalytic, supporting risky early-stage research, while incentivizing private sector scaling.
Global Integration: joining regional and global R&D networks can multiply returns, facilitate technology transfer, and build export markets.
IP Reform and Legal Infrastructure: innovation depends on enforceable contracts and strong IP protections. Weak enforcement deters serious investors and innovators.
Innovation as a Structural Choice
Global R&D investment trends in 2024 make one thing clear: innovation is not an outcome, it’s a strategic choice. Economies that treat R&D as an industrial backbone are pulling ahead, while those that marginalize it are left in vulnerable positions.
To move beyond short-term stabilization and into sustainable, high-value growth, innovation laggards must embrace innovation not just as a slogan but as a system: cross-sectoral, long-term, and fully institutionalized.
In the race to define the future, ideas are the true currency, and only those who invest in them will lead.
This article was born out of two things: the lessons I drew from my professional life, which began in 1996 at a company that, at the time, invested $4.5 billion annually in R&D and continuously generated innovation, and the data I gathered from the report mentioned above.