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Sectorial Specialization and Diversification Indices for R&D

Economic activity that is concentrated in a small number of sectors could indicate specialization and that competitive advantages are being exploited. However, it can also render the economy vulnerable to risks arising from technological and economic shocks. 

 

To examine these aspects, this seminal work compares sectorial distributions of R&D expenditures, outputs, and patent applications in Israel and several other countries. We constructed a comparison database for this purpose that includes information on sectorial distributions of R&D expenditures and the contribution of these industries to the GDP of the business sector over 20 years. USPTO patent applications were associated with industry-of-use by applying a concordance that was recently developed for the World Intellectual Property Organization (WIPO). This processing allowed us to analyze patents as a proxy of technological innovation outcomes achieved by economic industries. The study also examines distribution indices that summarize the industry deployment of activity in the different countries, as well as the differences between them.

 

Our findings suggest similarities between Israel’s sectorial distribution of output and such distributions in other countries. Patent distributions are also similar across countries, although Israel tends to have a slightly higher concentration in electronics and optics equipment, pharmacology, computer programming, and medical devices. In contrast to the similarity in output and patent registration variables, Israel's R&D investment distribution vastly differs from that in other countries. It is characterized by a high concentration of R&D in the business services branch, probably the world's highest level. This fact is also expressed in an international comparison of concentration indices of R&D investments, where the index value of Israel is highest among the countries compared.

 

It is conjectured that this finding reflects mainly the Israeli Central Bureau of Statistics (CBS) classification of R&D expenditures in startups under the business services branch category, regardless of the startup's sector affiliation. This procedure is currently being modified in accordance with the worldwide standards, which is expected to mitigate the differences between Israel's and other countries’ sectorial R&D investments distributions.