A natural resources firm that begins to operate in a poor community might build a school, offer medical services, or improve irrigation and sanitation equipment. Similarly, a company might invest in research and development in sustainable technologies, even though the project might not immediately lead to increased profitability.

“Research and Development” is a phrase used to denote activities, the overall goal of which is to gain and use knowledge. These activities usually are well organized, making use of the methods of various branches of knowledge and the services of highly trained personnel.

Scientific Research and Development

Scientific research and development (R & D) signify activities focused on the natural sciences rather than the humanities and social sciences. R & D is usually classified, according to its aims, into 3 broad categories:

pure research (curiosity oriented, undertaken to advance knowledge for its own sake); applied research (carried out in anticipation that its results will be useful to technology); development (concerned with transforming technological knowledge into concrete operational hardware).

The R & D process is often described by linking the 3 categories. Applied research is said to use the ideas generated by pure research in making inventions which, in turn, are made commercially viable through development. This description, while suggestive of how knowledge is applied, is too simplistic to be of much use in understanding R & D efforts.

A significant proportion of national resources are now devoted to R & D by developed countries, and the level of funding has become a major policy concern. R & D is valued primarily as a source of technological change. However, little is known about the effectiveness of expenditures on R & D, in part because R & D encompasses activities with a wide range of goals, is found in many areas (e.g., medical, military, space) and is pursued many purposes (e.g., health and welfare, prestige, security and the advancement of knowledge).

Aggregate measures of R & D, such as the ratio of gross expenditures on R & D to a gross domestic product, are very difficult to interpret. Another factor is our lack of knowledge about the efficiency of R & D systems. The third area of difficulty is that the effectiveness of R & D is measured in terms of social and economic consequences to which many factors besides R & D-induced technology contribute. For example, industrial research and development (i.e., R & D devoted to economic objectives) are performed with the expectation that they will contribute to economic growth, by improving products and processes or developing new ones. Yet the exact role of industrial R & D is difficult to substantiate because many other factors, including market forces, management, and labor skills, and financing, play an essential part in determining whether the results of industrial R & D will lead to economic growth. In fact, R & D costs are usually a small fraction of the total costs of launching a new product or process.

Industrial R & D expenditures are heavily concentrated in a few industries. Large firms undertake most industrial R & D, but many smaller ones are equally research-intensive. The determinants of research intensity are difficult to identify and evaluate because of differences between industries and the lack of proper data.