TRADE IN R&D-RELATED SERVICES: A NEW

INDICATOR OF INDUSTRIAL KNOWLEDGE FLOWS

National Science Foundation NSF 06-326

Directorate for Social, Behavioral, and Economic Sciences August 2006

by Francisco Moris

Information and data from the Division of Science Resources Statistics are available on the web at http://www.nsf.gov/statistics/.

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INFOBRIEF SRS

Science Resources Statistics 

The flow of knowledge through trade in services

represents the convergence of two recent trends in

U.S. industrial science and technology (S&T): an

increase in R&D performance in the service sector and

an increase in external and overseas innovation linkages.

R&D-related data on affiliated trade in international

services represent a new indicator of international

industrial knowledge and technology flows. Other such

indicators include high-technology goods trade, patent

royalties and license fees, and foreign direct investment

(NSB 2006a, 2006b).

International trade in research, development, and

testing (RDT) services is contributing to the U.S. trade

surplus in business services overall, according to data

from the Bureau of Economic Analysis (BEA). Trade

in RDT services can be separated into its component

parts: affiliated (intracompany) and unaffiliated (crosscompany) trade. Newly available data on affiliated

trade show that since at least 2001, U.S. trade surpluses in RDT services have been driven more by U.S.

affiliates of foreign multinational corporations (MNCs)

and their relatively large exports of services than by

parent companies of U.S. MNCs. This finding is

consistent with the growing share these affiliates have

in U.S. industrial R&D. In contrast, the unaffiliated

trade surplus in RDT services has been down since

2001, due to the faster growth in imports than in

exports of these services.

Trade Terminology and Definitions

U.S. MNC comprises a U.S. parent company and its

foreign affiliates. An affiliate is a business that is

located in one country but is owned or controlled by a

parent company located in another country. In this

InfoBrief, the parent company of a U.S. MNC is a

fully consolidated U.S. enterprise that owns or controls

at least 10 percent of the voting securities, or equivalent, of a foreign business enterprise. A foreign MNC

is a multinational corporation whose parent company is

located outside the United States. By definition, MNCs

are engaged in foreign direct investment: the ownership

of productive assets outside the home country.

BEA services trade data presented here are published

by type of service, not by industry of the respondent,

and cover international transactions in private services,

which exclude government transactions. The category

research, development, and testing services (RDT) is

a component of business, professional, and technical

services (BPT). Examples of other categories within BPT

are computer and information services and management

and consulting services. BPT, in turn, is a major category

of private services. Other categories within private

services include financial services, travel services,

telecommunications, and royalties and licensing fees.

An international transaction (cross-border trade) is a

transaction between a U.S. resident and a foreign

resident, regardless of ownership considerations. In

international trade statistics, “residency” refers to both

location and economic activity in a given country. Thus,

affiliates of MNCs are regarded as residents of the

countries where they are located rather than as residents of the countries of their owners. Separately,

cross-border trade among entities within and outside of

MNCs can be identified, allowing a profile of trade

statistics for private services in terms of intracompany
2 Trade in R&D-Related Services: A New Indicator of Industrial Knowledge...

or affiliated trade and cross-company or unaffiliated

trade. Unaffiliated and affiliated trade data are available with different details: the former by country of

trading partner; the latter by ownership.1

Trade balance is defined as exports minus imports.

Services exports are measured by receipts, or sales.

Services imports are payments, or purchases. Trade

surplus refers to a positive trade balance.

Trade Flows in Private, Business, and RDT

Services

The United States has had annual trade surpluses in

overall private services of at least $60 billion since the

early 1990s, including a surplus of $65.9 billion in 2003,

according to international transactions data from BEA

(Borga and Mann 2004). BPT together with royalties

and license fees accounted for most of the trade

surplus within private services in 2003 ($28.9 billion and

$28.1 billion, respectively). In terms of trade volume

(exports plus imports), travel services constituted the

largest sector.

Between 2001 and 2003, RDT services represented 6

to 7 percent of the trade surplus in overall private

services and 14 to 17 percent of the surplus within BPT

(figure 1).

Between 2001 and 2003, total exports (affiliated and

unaffiliated) of RDT services fluctuated annually

around $7 billion, compared with total annual imports of

RDT services of under $3 billion, for trade surpluses up

to $4.8 billion within this period (table 1). Within BPT,

RDT services had the third largest surplus in 2003.

Comparison of Affiliated and Unaffiliated Trade

in RDT Services

International trade data in private services are available

for two major categories of customers or suppliers:

trade among unaffiliated companies and trade among

affiliates of the same company. For private services

overall, the unaffiliated portion of exports and imports

has been larger than the affiliated portion since at least

1992. The reverse has been true for BPT services and

its subcomponent, RDT services—affiliated exports

and imports have been larger than unaffiliated exports

and imports—since data have been available (1997 and

2001, respectively) (table 1).

Annual unaffiliated exports in RDT services were

slightly greater than imports in the period 2001 to 2003,

resulting in small trade surpluses (table 1). Indeed, the

unaffiliated trade surplus in RDT services has been

relatively flat since the early 1990s and has been

trending down since 2001, due to stronger growth in

imports than in exports (figure 2). Further, when Japan

is excluded from unaffiliated trade (the largest export

destination for RDT services), small trade surpluses

turn into small deficits in 2002 and 2003 (table 2).

Affiliated trade in RDT services is larger than unaffiliated trade and has recorded relatively large trade

surpluses: from 2001 to 2003 annual exports fluctuated

around $6 billion, whereas annual imports remained

under $2 billion, resulting in trade surpluses between $4

and $5 billion over this period (table 1).

Affiliated trade in business services, particularly R&Drelated services, may reflect advantages of internally

managing, exploiting, and protecting complex or strategic transactions involving proprietary technical information (Caves 1996, McEvily et al. 2004). The prominence

of affiliated trade in advanced economies is tied to trends

in foreign direct investment (FDI) (Markusen 2004). For

the United States, the large size of affiliated relative to

unaffiliated trade in RDT is consistent with stronger U.S.

FDI activity (Mataloni 2005), which increases the

number of potential affiliated trading partners. It is also

consistent with expanded R&D by MNCs (NSB 2006b),

increasing opportunities for intracompany knowledge

flows.

Affiliated RDT Trade within U.S. and Foreign

MNCs

Table 3 shows U.S. affiliated trade in RDT services in

terms of the identity of the U.S.-located trading partner

(parent company of U.S. MNC or U.S. affiliate of a

foreign MNC) and the foreign trading partner (foreign

affiliate of a U.S. parent or foreign parent of a U.S.

affiliate), thus, making possible an examination of intraMNC trade.

1

 BEA has collected data on international trade in unaffiliated

RDT services since 1992. BEA data on affiliated RDT services

trade became available in 2001. The definition of RDT services in

unaffiliated and affiliated trade from BEA surveys is essentially

the same (the definition within unaffiliated transactions contains

additional information on exclusions/inclusions). See “Data Notes”

for more information on data collection.
Trade in R&D-Related Services: A New Indicator of Industrial Knowledge... 3

FIGURE 1. U.S. international trade balance in BPT and RDT services: 1997–2003

0

5

10

15

20

25

30

1997 1998 1999 2000 2001 2002 2003

Billions of current U.S. dollars

BPT

RDT

BPT = business, professional, and technical services.

RDT = research, development, and testing services, a component of BPT.

NOTE: Total RDT services not separately available prior to 2001 because affiliated trade data were not available.

SOURCE: Bureau of Economic Analysis, U.S. International Services, cross-border trade, table 1, 

http://www.bea.gov/bea/di/1001serv/intlserv.htm. Data accessed August 2005.

FIGURE 2. U.S. unaffiliated trade in research, development, and testing services: 1992–2003

0

250

500

750

1,000

1,250

1,500

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Millions of U.S. current dollars

Trade balance

Exports

Imports

SOURCE: Bureau of Economic Analysis, U.S. International Services, cross-border trade, table 1, http://www.bea.gov/ 

bea/di/1001serv/intlserv.htm. Data accessed August 2005. 

TABLE 1. U.S. trade in research, development, and testing services: 2001–03

(Billions of current U.S. dollars)

Year Total Unaffiliated Affiliated Total Unaffiliated Affiliated Total Unaffiliated Affiliated

2001 6.5 1.0 5.5 2.4 0.7 1.7 4.1 0.3 3.8

2002 7.2 1.1 6.1 2.4 0.9 1.5 4.8 0.2 4.6

2003 6.8 1.3 5.5 2.9 1.3 1.6 3.9 * 3.9

* = less than $0.05 billion.

Trade balance

SOURCE: Bureau of Economic Analysis, U.S. International Services, cross-border trade, table 1, 

http://www.bea.gov/bea/di/1001serv/intlserv.htm. Data accessed August 2005. 

Exports Imports
4 Trade in R&D-Related Services: A New Indicator of Industrial Knowledge...

(Millions of current U.S. dollars)

Trade Trade Trade

Region/country Exports Imports balance Exports Imports balance Exports Imports balance

Affiliated and unaffiliated trade 6,546 2,425 4,121 7,199 2,411 4,788 6,801 2,885 3,916

Affiliated 5,500 1,700 3,800 6,100 1,500 4,600 5,500 1,600 3,900

Unaffiliated 1,046 725 321 1,099 911 188 1,301 1,285 16

Region/country

Canada 82 91 -9 93 118 -25 108 175 -67

Europe 461 419 42 560 555 5 702 788 -86

Belgium-Luxembourg 22 16 6 22 11 11 18 21 -3

France 59 30 29 61 38 23 55 43 12

Germany 102 42 60 115 84 31 158 130 28

Italy 9 6 3 9 14 -5 13 15 -2

Netherlands 14 10 4 15 19 -4 16 28 -12

Norway 4 3 1 3 3 0 4 9 -5

Spain 7 6 1 6 3 3 10 3 7

Sweden 15 14 1 15 19 -4 19 20 -1

Switzerland 79 42 37 127 40 87 137 59 78

United Kingdom 98 187 -89 139 254 -115 203 358 -155

Latin America and other Western Hemisphere 54 37 17 49 31 18 55 95 -40

Argentina 7 7 0 2 7 -5 4 17 -13

Bermuda 13 9 4 D 3 NA 12 3 9

Brazil 7 6 1 11 6 5 6 32 -26

Chile 1 2 -1 1 1 0 1 3 -2

Mexico 13 3 10 10 5 5 18 22 -4

Venezuela 4 1 3 4 * NA 3 1 2

Africa 60 60 0 29 49 -20 21 59 -38

South Africa 42 32 10 9 15 -6 11 9 2

Middle East 44 28 16 38 8 30 48 14 34

Israel 12 23 -11 11 7 4 15 11 4

Saudi Arabia 19 4 15 13 * NA 14 * NA

Asia and Pacific 338 91 247 323 150 173 359 154 205

Australia 19 11 8 17 12 5 16 21 -5

China 12 9 3 13 5 8 10 4 6

Hong Kong 3 1 2 3 4 -1 3 3 0

India 8 16 -8 4 14 -10 9 24 -15

Indonesia 5 3 2 5 5 0 4 9 -5

Japan 235 22 213 240 20 220 273 32 241

Korea, Republic of 27 3 24 15 3 12 20 3 17

Malaysia 2 * NA 1 1 0 2 1 1

New Zealand 1 * NA 1 * NA 1 7 -6

Philippines 2 1 1 2 1 1 2 1 1

Singapore 5 14 -9 4 D NA 4 17 -13

Taiwan 12 4 8 9 13 -4 7 15 -8

Thailand 4 2 2 6 3 3 7 5 2

Selected groupings

Unaffiliated, excluding Japan 811 703 108 859 891 -32 1028 1253 -225

Asia and Pacific, excluding Japan 103 69 34 83 130 -47 86 122 -36

European Union 358 333 25 410 472 -62 531 677 -146

Eastern Europe 18 34 -16 15 36 -21 18 41 -23

*Less than $500,000.

D = suppressed to avoid disclosure of data of individual companies.

NA = not available.

NOTE: Total for unaffiliated data includes international organizations and unallocated data not shown separately.

TABLE 2. U.S. trade in research, development, and testing services: affiliated and unaffiliated trade, and unaffiliated trade by selected 

region/country: 2001–03

SOURCE: Bureau of Economic Analysis, U.S. International Services, cross-border trade, tables 7.16–7.18, http://www.bea.gov/bea/di/1001serv/intlserv.htm.

Data accessed August 2005. 

2001 2002 2003
Trade in R&D-Related Services: A New Indicator of Industrial Knowledge... 5

From 2001 to 2003, annual exports of RDT services

from U.S. parents to their foreign affiliates fluctuated

narrowly around $2.1 billion, compared with up to $1

billion in annual imports from their foreign affiliates,

resulting in trade surpluses within U.S. MNCs of $1.2

to $1.6 billion over this period (table 3). Over the same

period, RDT services exports by affiliates of foreign

MNCs in the United States to their foreign parents (and

other foreign members of the company) were larger—

$3 to $4 billion annually—with annual imports up to

$1.1 billion, resulting in trade surpluses within foreign

MNCs between $2.2 and $3.2 billion (table 3). In short,

these estimates show that in recent years U.S. trade

surpluses in research, development, and testing services

within U.S. MNCs have been smaller than within

foreign MNCs with activities in the United States.

Affiliated RDT Trade and U.S. Industrial R&D

Comparisons between R&D-related trade and R&D

expenditures data should be treated with caution

because RDT services and R&D expenditures are

related but distinct concepts. One difference between

R&D expenditures as collected by NSF and RDT

services trade data as collected by BEA is that trade

data include testing services beyond R&D-based

testing activities (which are limited to nonroutine and

preproduction activities).2

 Nevertheless, R&D performance is a precursor for many R&D-related services

exports. Thus, relative R&D performance levels across

MNCs or across countries may contribute to trade

balances in R&D-related services.

The discussion above of affiliated trade suggests that

the U.S. trade surplus in RDT services is fueled by

relatively large exports by U.S. affiliates of foreign

MNCs. Their share in U.S. R&D has been rising (NSB

2006b), although they still perform less than 15 percent

of U.S. industrial R&D. However, a substantial portion

of affiliates’ RDT activities appears to be services for

their foreign parents (and other foreign members of the

company). In particular, RDT services exports of $3.4

billion from U.S. affiliates of foreign MNCs to their

foreign parents in 2003 was the equivalent of 11.4

percent of the $29.5 billion in R&D expenditures

performed by these affiliates, according to NSF and

BEA data.3

Compared with U.S. affiliates of foreign MNCs, parents

of U.S. MNCs performed a larger proportion of U.S.

industrial R&D—69 percent, or $140.1 billion of $204.0

billion in total U.S. industrial R&D in 2003—according

to data from the NSF survey of industrial R&D and BEA

data (Mataloni 2005). However, U.S. parents’ $2.2

billion in RDT services exports to all their overseas

affiliates was just 1.5 percent of their R&D expenditures.

Data Notes

BEA collects data on affiliated and unaffiliated trade

from different surveys, and then integrates them into

the U.S. international transactions account and the U.S.

balance of payments.

Data on affiliated services trade are collected by BEA’s

quarterly balance of payments surveys on affiliates:

Transaction of U.S. Affiliates, Except U.S. Banking

Affiliates, with Foreign Parent (survey form BE-605)

covers affiliates of foreign MNCs in the U.S.; Direct

Transactions of U.S. Reporter with Foreign Affiliate

(survey form BE-577) covers U.S. MNCs. In these

affiliates’ surveys, RDT services are defined as

“Commercial and noncommercial research, product

development services, and testing services.” Affiliated

trade data in RDT services, a component of business,

professional, and technical services (BPT), have been

available since 2001. BPT affiliated trade data have been

available since 1997. Before then, these components

were included in the overall trade figures but were not

separately available.

Data on unaffiliated services trade in RDT services are

collected by BEA’s surveys on transactions with

unaffiliated foreign persons or entities, along with other

2

 In addition, data on R&D services traded in the open market

reflect operating surplus, unlike most measures of R&D expenditures.

3

 U.S. industry R&D data are from the NSF Survey of

Industrial R&D. BEA data (Zeile 2005) are for majority-owned

affiliates of foreign MNCs (a majority-owned affiliate is owned or

controlled by more than 50 percent of the voting securities [or

equivalent] by its parent company); R&D by all affiliates is not

available for 2003. Because R&D by all affiliates is by definition a

larger amount, the desired comparison would be lower than the

11.4 percent reported in the text. R&D by majority-owned

affiliates of foreign MNCs represented an increasing share of R&D

by all affiliates of foreign MNCs reaching about 90 percent in the

late 1990s. Applying the later ratio to the 2003 data, the ratio

reported in the text would be lower by one percentage point.
6 Trade in R&D-Related Services: A New Indicator of Industrial Knowledge...

business, professional, and technical services (BEA 1998).

These surveys are the Benchmark Survey of Selected

Services Transactions With Unaffiliated Foreign Persons

(survey form BE-20), conducted every 5 years (the last

was performed in 2001), and the Quarterly Survey of

Transactions Between U.S. and Unaffiliated Foreign

Persons in Selected Services and in Intangible Assets

(survey form BE-25) for non-benchmark years. These

surveys for unaffiliated transactions define RDT services

as “Commercial and noncommercial research, product

development services, and testing services. Includes fees

for the conduct of experiments or performance of

research and development activities aboard spacecrafts.

Excludes medical and dental laboratory services.”

Services sold to, or purchased from, unaffiliated foreign

persons are reported regardless of whether the services

were performed in the United States or abroad. Data are

consolidated by enterprise for all U.S. reporters. “United

States” means the 50 U.S. states, the District of Columbia, the Commonwealth of Puerto Rico, and all territories and possessions of the United States (BEA 1990).

Full historical tables on international transactions in

private services are available at http://www.bea.gov/

bea/di/1001serv/intlserv.htm.

References

Bureau of Economic Analysis (BEA). 1990. The Balance of

Payments of the United States: Concepts, Data Sources,

and Estimating Procedures. Washington, DC: U.S.

Government Printing Office. Available at http://

www.bea.gov/bea/articles/INTERNAT/BPA/Meth/

bopmp.pdf. Accessed March 2006.

Bureau of Economic Analysis (BEA). March 1998. U.S. International Transactions in Private Services: A Guide to the

Surveys Conducted by the Bureau of Economic Analysis.

Washington, DC. Available at http://www.bea.gov/bea/

ARTICLES/INTERNAT/INTSERV/Meth/itguide.pdf.

Accessed March 2006.

Borga, M. and M. Mann. October 2004. U.S. international

services: Cross-border trade in 2003 and sales through

affiliates in 2002. Survey of Current Business 84(10):25–76.

Caves, R.E. 1996. Multinational Enterprise and Economic

Analysis. 2nd ed. London: Cambridge University Press.

Mataloni, R.J. July 2005. U.S. multinational companies: Operations in 2003. Survey of Current Business 85(7):9–29.

Markusen, J.R. 2004. Multinational Firms and the Theory of

International Trade. Cambridge, Massachusetts: MIT Press.

McEvily, S.K., K.M. Eisenhardt, and J.E. Prescott. 2004. The

global acquisition, leverage, and protection of technological

competencies. Strategic Management Journal 25:713–22.

(Billions of current U.S. dollars)

Exports Imports Exports Imports

Trade From U.S. parents From foreign affiliates Trade From U.S. affiliates From foreign parents Trade

Year Exports Imports balance to foreign affiliates to U.S. parents balance to foreign parentsa to U.S. affiliatesa balance

2001 5.5 1.7 3.8 2.2 0.6 1.6 3.3 1.1 2.2

2002 6.1 1.5 4.6 2.1 0.7 1.4 4.0 0.8 3.2

2003 5.5 1.6 3.9 2.2 1.0 1.2 3.4 0.6 2.8

MNC = multinational corporation.

a

 Data include transactions with other foreign members of the MNC. 

NOTE: Detail may not add to total because of rounding.

SOURCE: Bureau of Economic Analysis, U.S. International Services, cross-border trade, table E, 1997–2004, http://www.bea.gov/bea/di/1001serv/intlserv.htm. Data 

accessed August 2005. 

TABLE 3. U.S. affiliated trade in research, development, and testing services disaggregated by U.S. and foreign MNCs: 2001–03

U.S. affiliated trade

Within U.S. MNCs Within foreign MNCs
Trade in R&D-Related Services: A New Indicator of Industrial Knowledge... 7

National Science Board (NSB). 2006a. Industry, technology, and

the global marketplace. In Science and Engineering Indicators

2006. Arlington, VA: National Science Foundation. Available

at http://www.nsf.gov/statistics/indicators/.

National Science Board (NSB). 2006b. U.S. and international research

and development: Funds and technology linkages. In Science

and Engineering Indicators 2006. Arlington, VA: National Science

Foundation. Available at http://www.nsf.gov/statistics/indicators/.

Zeile, W.J. August 2005. U.S. affiliates of foreign companies:

Operations in 2003. Survey of Current Business 85(8):198–214.

For more information, contact

Francisco Moris

Research and Development Statistics Program

Division of Science Resources Statistics

National Science Foundation

4201 Wilson Boulevard, Suite 965

Arlington VA 22230

703-292-4678

fmoris@nsf.gov
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