R & D Activities and the Technology Game: A Dynamic Model of U.S.-JapanCompetition

This paper presents an international comparison of R&D activities in basic and applied research. The commonly-held view that Japan is not spending much on basic technology development cannot be empirically substantiated from the study of the historical trends. However, the fact that in the U.S.A. the largest proportion of industrial R&D expenditures is spent on the defense and aero-space related industries (60%) ,while Japan is spending the largest proportion (60%) on the chemical, electronics, communication and automobile industries, may indicate that in effect Japan emphasizes the development of applied technology.The second part of the paper is to show how two countries, one with heavy R&D activities in basic technology (the U.S.A.)and the other with heavy R&D activities in applied technology(Japan), can compete in the world market with their productivity differences in basic and applied fields. A simple model of differential game is presented to explain how Japan can increase the market share by utilizing both the informational and productivity efficiencies.