The U.S. Israel Innovation Index: Comparing International Linkages In Innovation

Transcription

1 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation 2011 Developed by the US Israel Science and Technology Foundation in Association with the US Israel Science and Technology Commission

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3 U.S. Israel Innovation Index Advisory Committee The U.S. Israel Science and Technology Foundation would like to thank its Advisory Committee for their significant contributions to the U.S. Israel Innovation Index (USI3). The Advisory Committee comprised of academic, industry, and policy thought leaders provided crucial feedback and insight throughout the entire process of planning, researching, and producing the Index. Dr. Ruth Arnon Dr. Kathryn Atchison Dr. Dan Breznitz Ms. Cathy Campbell Mr. Ohad Cohen Dr. Ora Dar Mr. Asher Epstein Ms. Miriam Erez Dr. Yona Ettinger Mrs. Tamar Guy Prof. Yehuda Hayuth Mr. Jonathan Heimer Dr. Alan Leshner Prof. Manuel Trajtenberg Ms. Limor Nakar-Vincent Ms. Debra van Opstal Ms. Susan Sauer Sloan Mr. Dan Vilenski Dr. Glenn Yago Dr. Eitan Yudilevich Paul Ehrlich Professor of Immunology at the Weizmann Institute, Israel Vice Provost, New Collaborative Initiatives, University of California, Los Angeles Associate Professor, Sam Nunn School for International Affairs and the College of Management Georgia Institute of Technology President and CEO, CRDF Global Head of Commercial Mission, Embassy of Israel, United States Head of the Life Sciences Sector, Israel Ministry of Industry, Trade and Labor, Office of the Chief Scientist Managing Director, Dingman Center for Entrepreneurship, Smith School of Business, University of Maryland Professor Emeritus, Faculty of Industrial Engineering and Management, Technion and Chair, Knowledge Center for Innovation, Technion Israel Institute of Technology Executive Director of the U.S. Israel Binational Science Foundation (BSF) Executive Director, Israel America Chamber of Commerce Senior Research Fellow, Samuel Neaman Institute for National Policy Research, Technion, Israel Institute of Technology Senior Commercial Officer, U.S. Embassy, Tel Aviv, Israel CEO, American Association for the Advancement of Science Chairman of the Planning and Budgeting Committee, Israel Council for Higher Education Director, U.S. Business Development, Israel-U.S. Binational Industrial Research and Development Foundation (BIRD) Senior Advisor, Center for the Study of the Presidency and Congress Director, Government University Industry Research Roundtable (GUIRR), The National Academies Entrepreneur, Former Chairman of Applied Materials Israel Senior Director/Senior Fellow, Milken Institute Executive Director, Israel U.S. Binational Industrial Research and Development Foundation (BIRD) The USI3 Advisory Committee generously dedicated their time and expertise to support the development of the USI3. While they informed the USI3 development process, specific outcomes and conclusions may not reflect the positions of the individual Advisory Committee Members. i

4 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation About the U.S. Israel Science and Technology Foundation The U.S. Israel Science and Technology Foundation (USISTF) is a Washington, D.C. based nonprofit organization, created by an initiative of the U.S. Department of Commerce and Israel s Ministry of Industry, Trade and Labor. The mission of the USISTF is to facilitate research and development cooperation between the U.S. and Israel s industry, government and universities in order to enable science and technology based economic growth for the benefit of both nations. The USISTF achieves its mission through producing research and information, convening scientific workshops and industry events, and helping to facilitate new R&D framework agreements among existing government programs. USISTF Ann Liebschutz, Executive Director Eve Copeland, Program Manager USISTC David Miron-Wapner, Executive Director Section 2 USISTF Board of Directors * Eric Benhamou Arnold Brenner * Steven Friedman Uzia Galil Avi Hasson, Chair Kenneth Rind Denis Simon Zehev Tadmor Yoram Yahav *Appointed to the U.S. Israel Science and Technology Commission The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Developed by the U.S. Israel Science and Technology Foundation in Association with the U.S. Israel Science and Technology Commission Prepared by Futron Corporation Copyright 2011 U.S. Israel Science and Technology Foundation 1300 Pennsylvania Ave., NW Suite 700 Washington, DC Telephone: Fax: ii

5 Table of Contents Executive Summary Introduction and Objectives Why Benchmark Linkages Between the United States and Israel? Study Objectives Rationale for Chosen Indicators and Countries What is an Index? Summary of Findings Methodology and Model Structure Overview Benchmarking the U.S. Israel Relationship Against Other Nations Government Category Human Capital Category Private Sector and Industry Category Research and Development Category Future Directions The U.S. Israel Relationship in Science and Technology Science and Innovation Profiles of the U.S. and Israel Describing the U.S. Israel Relationship Government Metrics Human Capital Metrics Private Sector and Industry Metrics Research and Development Metrics Conclusion List of Exhibits Exhibit 1: Comparator Countries and Indicator Categories Used in the Index Exhibit 2: Summary Results by Indicator Category Exhibit 3: Summary Index Results Exhibit 4: Index Structure...9 Exhibit 5: Summary Results Government Indicators...11 Exhibit 6: Aggregate Government Results Exhibit 7: Summary Results Human Capital Indicators...13 Exhibit 8: Aggregate Human Capital Results Exhibit 9: Indicator HC-4, H1-B Entries, in Time Series...15 Exhibit 10: Summary Results Private Sector and Industry Indicators...16 Exhibit 11: Aggregate Private Sector and Industry Results...17 Exhibit 12: Summary Results Research and Development Indicators...19 Exhibit 13: Aggregate Research and Development Results...20 Exhibit 14: Indicator R&D-3, Co-patent Applications, in Time Series Exhibit 15: Israeli Science, Technology, and Innovation Summary...23 Exhibit 16: Core Statistics of Israel...25 Exhibit 17: U.S. Science, Technology, and Innovation Summary...26 Exhibit 18: Core Statistics of the United States...27 Exhibit 19: Raw Data on U.S. and Israel Indicators...28 Exhibit 20: Government Budget Appropriations on Research and Development..29 Exhibit 21: Higher Education Sector Expenditure on Research and Development..30 Exhibit 22: U.S. H1-B Visas Received Exhibit 23: Industry Financed Gross Domestic Expenditure on Research and Development...31 Exhibit 24: Activity of Multinational Companies Exhibit 25: Total National R&D Expenditures as a Percentage of GDP...32 Exhibit 26: R&D Activity by Foreign Affiliates of Companies

6 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Executive Summary The U.S. Israel Science and Technology Foundation (USISTF) has developed the U.S. Israel Innovation Index ("the Index") in order to assess innovation-related collaboration between the U.S. and Israel and to compare and benchmark that collaborative relationship to the collaboration that exists between the United States and a set of countries that are technically and economically similar to Israel and, like Israel, possessing important trade relationships with the U.S. The Index measures innovation-related collaboration between the United States and Israel by tracking metrics measuring activities and relationships in the following primary categories: Government, Private Sector & Industry, Human Capital, and Research & Development (R&D). Though metrics measuring cooperation in these innovation-related activities will give an idea of the benefits of U.S. Israel science and research cooperation, the true value of the relationship will be difficult to understand without comparisons to similar cooperation between the United States and other innovation inclined countries. To this end, the Index benchmarks the U.S. Israel relationship against that between the U.S. and a selected set of countries that are economically and competitively similar to Israel. Section 2 The Index results show that Israel s relationship with the U.S. in innovationrelated activities is stronger than that between the U.S. and any of the other compared countries. The Index indicates that the United States and Israel have strong and consistent linkages in areas related to innovative activities with a balance of strong linkages in all four indicator categories. The Index has identified a number of themes that characterize the U.S. Israel relationship related to science and technology; and relate to international collaboration in innovation broadly. These trends include: The U.S. Israel technology relationship clearly benefits from the unique political relationship between the two countries. Israel is viewed an R&D destination of choice among many U.S. American companies, while many Israeli companies enter the U.S. market to obtain capital and penetrate a large economic market. U.S. Israel cultural and societal ties transcend a large variety of nonscientific and technological elements of the relationship; which further stimulate interaction between the two countries. Leveraging innovation-related international collaboration is one vector toward achieving socioeconomic advancement goals. How policymakers, academic practitioners, and industry leaders utilize and develop the strong U.S. Israel relationship described in the U.S. Israel Innovation Index remains to be seen. 2

7 1. Introduction and Objectives The U.S. Israel Innovation Index measures quantitative and qualitative aspects of the U.S. Israel relationship in innovation-related, knowledge-intensive activities. This study adapts a definition of innovation developed by the Advisory Committee on Measuring Innovation in the 21st Century Economy in its 2008 report to the Secretary of Commerce; applying it to country-level activity (rather than individual firm level as the Advisory Committee did). Within the context of the U.S. Israel Innovation Index, innovation is considered as: "The design, invention, development and/or implementation of new or altered technology, processes, systems, organization structures, or business models for the purpose of creating new value and economic returns for the country, it s firms, and/or its citizens. 1 " The Index sets out to measure linkages that contribute to innovation: those elements of binational collaboration that contribute to the development of knowledge and/or scientific and technological advancement for economic or societal development. It: Represents an original framework for evaluating binational scientific, technology, and business relationships that cross government, society, academia, and industry. Provides a quantitative analysis that can be tracked year-on-year going forward. Produces an annual report on the U.S. Israel Innovation Collaboration Relationship which aims to support and stimulate industry, government, media, and civil society discourse. In essence, the Index measures the intensity of innovation-related linkages between the compared countries and the U.S Why Benchmark Linkages Between the United States and Israel? Israel is a world leader in innovation, dedicating a greater portion of GDP to research and development than any nation in the world. 2 Per capita, Israel also leads in the creation of high-tech start-up companies, a testimony to the country s entrepreneurial spirit. 3 The country has an ideas-driven economy where high technology collaboration with the United States has generated tremendous benefits for both countries. The United States is the single most important strategic relationship for Israel not only in terms of security, but in trade as well. A much larger economy, the United States maintains a number of robust trading 1 Adapted from: The Advisory Committee on Measuring Innovation in the 21st Century Economy. Innovation Measurement: Tracking the State of Innovation in the American Economy. January innovation_measurement_11808.pdf 2 OECD, Main Science and Technology Indicators, Senior, Dan and Singer, Saul. Start-up Nation: The Story of Israel s Economic Miracle. Council for Foreign Relations

8 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation relationships with varied economies around the world. Benchmarking the U.S. Israel relationship vis-à-vis the relationships the U.S. holds with other nations enables us to better understand how the science and technology relationship between the U.S. and Israel measures against other science and technology related relationships of the U.S.; and to identify strengths and weaknesses exhibited in those relationships. Section 2 Section 1 Introduction and Objectives Israel s future development economic, social, political is closely tied to the strength of the U.S. Israel relationship, while the United States geopolitical prominence is reflected in its relationship with Israel. Existing programs must be bolstered and new initiatives forged. The trajectory for success has been outlined in the Israel 2028 Vision and Strategy, which describes a set of goals aimed at bolstering U.S. Israel cooperation in science and technology and recommendations for moving Israel toward ever-stronger economic and social footing. 4 To track progress towards those goals, the U.S. Israel Science and Technology Foundation has initiated the U.S. Israel Innovation Index Project ("the Index") Study Objectives The U.S. Israel Innovation Index assesses innovation-related collaboration between the U.S. and Israel and compares and benchmarks that collaborative relationship to the linkages that exist between the U.S. and a set of other innovation-inclined countries which, like Israel, possess important trade relationships with the U.S. The Index measures innovation-related collaboration between the United States and Israel by tracking metrics measuring activities and relationships in the following primary categories: Government, Private Sector & Industry, Human Capital, and Research & Development (R&D). Though metrics measuring cooperation in these innovation-related activities will give an idea of the extent of U.S. Israel cooperation related to scientific and technological innovation, the true character of the relationship will be difficult to understand without comparisons to similar cooperation between the United States and other innovation inclined countries. To this end, the Index benchmarks the U.S. Israel relationship against that between the U.S. and a selected set of countries Rationale for Chosen Indicators and Countries Countries included as comparators in the Index were selected based on criteria for evaluation which emphasized standardized data availability and comparability, (e.g., supporting apples to apples comparison) and qualitative similarities in the nature of the relationship between the country and the U.S. and that of the relationship between Israel and the U.S. Accordingly, the following factors were used in evaluating countries for potential inclusion in the 4 U.S. Israel Science and Technology Commission (USISTC), Israel 2028: Vision & Strategy Plan, 2008, org/05_a_curproj_stretgicplan.html 4

9 benchmarking index. Not all countries ultimately chosen for inclusion share all of these factors. Important trade relationship with the U.S. Similar knowledge-intensive industries and economy size to Israel. OECD membership/engagement (provides common and comparable data source). A desire to include geographic diversity in the Index was also important in the selection of the included countries. Indicators (or "metrics") used to compose the Index were selected in four categories, covering activities and linkages in Government, Private Sector & Industry, Human Capital, and Research & Development. Factors governing the selection of indicators included: Metrics should be available in time series to support repeated annual evaluation. Selected metrics should, to the extent practicable, be quantitative in order to reduce the possibility of bias (qualitative metrics are more open to debate and interpretation). To drive transparency, data should be publically available and/or replicable; where possible, open source information was used. Metrics used in the Index primarily measure linkages or collaboration between countries, but selected indicators also assess baseline S&T related resources within a given country. Exhibit 1, below, provides an overview of the country and indicator types used in the Index. Exhibit 1: Comparator Countries and Indicator Categories Used in the Index Comparator Countries Chile Finland Germany Israel Singapore South Korea Sweden Switzerland United Arab Emirates Indicator Categories Government Indicators measure and analyze the extent of government to government treaties, funding, and diplomatic linkages related to scientific and technological activity. Private Sector and Industry Indicators measure knowledge-intensive industry commercialization and coordination, including investment patterns and trade relationships. Human Capital Indicators assess the degree of linkages in human capital in science and technology related fields; including educational exchanges and academic literature co-authorship. Research and Development Indicators quantify both input activities such as R&D spending and output metrics such as patents granted. 5

10 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation While overall the indicators used in this study aim to measure bilateral linkages, each category of indicators includes a single indicator, which does not measure linkages. Instead, these four indicators measure resources or assets in place within an individual country. These inward-focused indicators are intended to measure the baseline resources base from which the comparator countries built collaboration. Further detail on the countries selected and indicators used in the Index is given in the accompanying Data Annex, which includes all the data used to inform the selection of countries What is an Index? Section 2 Section 1 Introduction and Objectives The concept of indexing is often used in economics and finance to develop a common statistical measurement to represent a group of individual data points distilled down to a simplified comparison. This data can include diverse types of information derived from different sources. Commonly recognized indexes include stock indexes, e.g., Dow Jones Industrial Average, S&P 500, or the GDP Deflator Index. There are also a number of indices focused on competitiveness, high technology, research and development, or information communications technology (ICT). A few relevant examples include: The Global Competitiveness Index produced by the World Economic Forum; Exhibit 2: Summary Results by Indicator Category Benchmarking U.S. Israel Hi-tech Collaboration Aggregate Government Metrics Aggregate Human Capital Metrics Israel Israel South Korea South Korea Germany Singapore Sweden Switzerland Finland Sweden Singapore Finland Switzerland Germany Aggregate Private Sector Metrics Aggregate R&D Metrics Israel Switzerland Singapore Germany Switzerland Israel Germany South Korea Sweden 9.20 Singapore South Korea 8.31 Sweden Finland 5.82 Finland

11 The Global Innovation Index developed by the Boston Consulting Group; and The ICT Development Index calculated by the International Telecommunication Union. Each of these indexes incorporates disparate datasets to develop a common benchmark to provide insight about the relevant topics. In order to create an index, the various data points need to be consistent and reflect a common standard or base value to facilitate comparisons. For simplicity, most indices initially link the underlying data to 100, which permits all other information to be expressed relative to this number. A figure of 110 compared to the index value of 100, represents a 10% difference in the underlying data and therefore enables comparisons of specific peers. Indices are often used in time series where comparison of the base value can represent changes over time. Thereby, an entity that receives a value of 100 in the base year and 110 in the second year of an annual index could be described as showing a 10% year over year improvement. So by using indices, analysts can reduce a sizeable dataset into easily understood terms allowing comparison of peers at a given point and can track their movement overtime Summary of Findings The U.S. Israel Innovation Index shows that Israel s innovation-related relationship with the U.S. is consistently strong in most all indicators included in the Index. Tracking these results over time will show whether that strength is maintained. Results demonstrate that Israel s relationship to the U.S. in innovation-related activities is stronger than that between the U.S. and any of the other compared countries, as shown in Exhibit 3. The strength of the U.S. Israel relationship, as compared to that between the U.S. and the other included countries, is comparatively most developed in Government and Private Sector & Industry and comparatively least developed in Research and Development linkages. In the area of Human Capital, linkages between the U.S. and Israel are greater than those between the U.S. and South Korea by only a slight margin. Exhibit 3: Summary Index Results Measuring U.S. Israel Hi-tech Collaboration Aggregate Index Results Israel Switzerland South Korea Germany Singapore Sweden Finland

12 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation The relative strength of the U.S. Israel relationship in the Government, Human Capital, and Private Sector categories is the strongest of any of the countries included in the Index. In the Human Capital category, the relative strength of the U.S. Israel relationship is only slightly stronger than that between the U.S. and South Korea. In the Research and Development category, the relative strength of the U.S. Israel relationship trails the relationship between the U.S. and Switzerland and Germany, while surpassing that between the U.S. and South Korea, Singapore, Sweden, and Finland. Section 2 Section 1 Introduction and Objectives While the aggregate Index results reveal key themes, analyzing the underlying data in each indicator category provides insight into developments and themes within the categorical areas of collaboration represented by the category groupings Methodology and Model Structure Overview At its core, the U.S. Israel Innovation Index is a benchmarking tool designed to track progress towards the goals outlined in the Israel 2028 Vision and Strategy, and provide a statistical foundation to understand the collaborative relationship among government, industry, and people of the United States and Israel in the fields of science and technology. The framework is designed to gather, organize, and standardize benchmarking data to facilitate analysis and evaluate information. The output of the Index focuses on identifying areas where U.S. Israel collaboration is strong relative to its peers; and likewise, where this relationship is relatively weak. The statistical output of the model provides underlying insight into U.S. Israel collaboration, comparing this to relationships the United States has with other nations. The statistical findings of the Index, therefore, provide a baseline from which to assess the collaboration across countries and over time. In future years, the U.S. Israel data for this Year 1 Index will serve as a baseline to compare annual changes. The U.S. Israel Innovation Index uses only quantitative metrics, which are normalized to ensure an appropriate comparison among nations that have vastly different sizes, population, and economic output. For example, as Germany has a significantly larger population and economy than Israel, a direct statistical comparison of indicators does not account for the countries relative differences. To address these disparities, the U.S. Israel Innovation Index normalizes data by population or size of economy, (e.g., gross domestic product adjusted for purchasing power parity [PPP], using data from the World Bank). The framework collects information on specific metrics, sometimes referred to as an indicator, that individually provide insight into a specific aspect of the collaborative relationship. At the same time, metrics are aggregated into categories, e.g., Government, Industry, Human Capital, and Research and Development, to provide a larger viewpoint; the categories are then combined into an overall score. It is important to note that the structure of the Index values each category equally, e.g., 25% of the total value, and within each category, 8

13 each indicator carries the same weight. In other words, each metric has the same relative value within the model with four metrics per category. The structure and composition of the Index is shown in Exhibit 4 below. Exhibit 4: Index Structure Metric Code Metric Target Measurement Source GOV-1 Government Budget Appropriations on R&D (GBAORD) Compares government investment in R&D, indicative of policy support for science and technology OECD GOV-2 GOV-3 GOV-4 PSI-1 PSI-2 PSI-3 PSI-4 HC-1 Inventory of Bilateral Treaties in Science and Technology Areas Foreign Operations Account Spending U.S. Department of State Existence of Bilateral Science and Technology Commissions Industry Financed Gross Domestic Expenditure on R&D (I-GERD) U.S. Exports and Imports in Knowledge-Intensive Industries Activity of MNC and MOFA (Foreign Affiliates) Number of Knowledge-Intensive Industry Companies Cross Listed Higher Education Expenditure on R&D (HERD) Shaded indicators measure baseline resources present in the country. Quantifies the number of international agreements in effect in technology-related areas Measures U.S. government funds flowing to target countries Identifies whether a bilateral S&T Commission, or similar organization, exists between target countries Compares industry investment in R&D, indicative of private sector activity Tracks magnitude of trade relationship with U.S. (imports/exports) in key knowledge-intensive industries by 4-digit NAICS codes Measures services supplied to foreign persons by U.S. MNCs through their MOFAs and vice versa 1) Measures foreign knowledge-intensive companies listed on U.S. exchanges, and 2) Measures U.S. knowledge-intensive companies listed on foreign exchanges Compares education-sector expenditures on R&D HC-2 Article Co-Authorship Counts article co-authorship between the U.S., Israel, and other comparator countries in Science and Engineering fields HC-3 U.S. Doctorates Awarded to Foreign Measures academic exchange between target countries Students, S&E Fields HC-4 Entries Under U.S. H1-B Temporary Counts country of citizenship of recipients of visas Work Visas R&D-1 R&D-2 Gross Domestic Expenditure on R&D (GERD) as a Percent of GDP R&D Expenditure of Foreign Affiliates Compares actual expenditures on R&D activities, by broad sector of activity Analyzes R&D investment by country from which bilateral R&D investment is originating R&D-3 USPTO Co-Patent Applications Measures collaborative patent applications (i.e., applications from multinational teams including target country) to the USPTO R&D-4 Patent Applications (World) & U.S. Patents Granted by Country of First Listed Inventor Quantifies patent activity, as proxy measure for innovation activity and output The Data Annex (a separate document) provides a listing and description of sources used to compile the data used in the Index. U.S. Department of State Treaties in Force Pub. U.S. Department of State IRS OECD U.S. International Trade Administration U.S. Bureau of Economic Analysis Various Open Source OECD U.S. National Science Foundation U.S. National Science Foundation U.S. Department of Homeland Security OECD U.S. Bureau of Economic Analysis USPTO WIPO USPTO 9

14 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation 2. Benchmarking the U.S. Israel Relationship Against Other Nations Section 2 Section 2 Benchmarking the U.S. Israel Relationship Against Other Nations The U.S. Israel Innovation Index tracks progress towards the goals outlined in the Israel 2028 Vision and Strategy, and provides a statistical foundation to understand the collaborative relationship among government, industry, and people of the United States and Israel in the fields of science and technology. The Index focuses on understanding U.S. Israel collaboration in innovationrelated activity, and comparing this to relationships the United States has with other nations. The following section compares the U.S. Israel relationship with similar relationships the U.S. maintains with other countries. In order to present a common viewpoint, Section 4 compares normalized data, which is benchmarked to Israel at an overall level of 100 basis points. As the benchmark, these basis points break down to 25 points for each category, equating to 6.25 basis points for each of the indicators (4 indicators per category). In other words, the presented scores characterize the relationship between the included countries and the United States. Scores are compared relative to the U.S. Israel score, which by definition in this first year Index is 6.25 basis points per indicator, and 100 points across the Index. In understanding the results of the Index, it is important to note that 100 is not the maximum score on the Index. For individual indicators, relationships that are more concentrated than the U.S. Israel relationship will score higher than The first year of the Index reports summary findings for each indicator category and provides discussion of trends and results for selected individual indicators. Detailed raw data on each individual indicator is included in the Data Annex. Subsequent annual editions of the Index will expand this discussion to include year over year changes in the country-by-country relationships Government Category Metrics in the Government category measure and analyze the impact of legislation, regulation, and diplomacy on the extent of innovation-related collaboration between the U.S. and the target countries. The strength of the U.S. Israel relationship in Government metrics related to innovative activities falls between that of U.S. and Germany, Finland and Sweden and that of the U.S. and South Korea, Switzerland and Singapore. Exhibit 5 presents summary results for the Government section of the Index. 10

15 Exhibit 5: Summary Results Government Indicators Raw Data GOV-1 GOV-2 GOV-3 GOV-4 Government budget appropriations on R&D (million US$, PPP) Number of treaties in effect in S&T areas between the country and the U.S. as of year-end 2010 U.S. Foreign Operations spending in-country as tracked by the U.S. Department of State (FY2010Actual, US$) Number of bilateral S&T commissions, or similar organization, that exist between the U.S. and target countries as of year-end 2010 Chile $1,950,000 0 Finland $2, (2010) 5 $0 0 Germany $28, (2010) 24 $0 0 Israel $1, (2010) 13 $2,775,000,000 5 Singapore $2, (2009) 4 $500,000 0 South Korea $14, (2010) 14 $0 1 Sweden $3, (2009) 13 $0 0 Switzerland $2, (2008) 5 $0 0 United Arab Emirates -- 4 $230,000 0 United States $165, (2009) NA NA NA Benchmarked Data GOV-1: R&D Budget Appropriations GOV-2: S&T Treaties GOV-3: U.S. Foreign Ops Spending GOV-4: S&T Commissions Strength of Relationship South Korea Benchmark Finland Sweden Singapore Germany Switzerland Israel US Germany US South Korea US Israel, US Chile US Israel US Israel US Switzerland, US Finland US Singapore, US UAE US UAE US Singapore US Chile US South Korea Normalization Factor Used Raw Data Expressed as Percent of GDP No Normalization Raw Data Used Population No Normalization Raw Data Used 11

16 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Government Indicators Summary Section 2 Section 2 Benchmarking the U.S. Israel Relationship Against Other Nations Exhibit 6: Aggregate Government Results Israel South Korea Germany Sweden Finland Singapore Switzerland The Government category is led by Israel, South Korea, and Germany as shown in Exhibit 6. When data on government budget appropriations on research and development (GBAORD) a baseline resources indicator of policy support for R&D is normalized (expressed as a ratio to GDP), all countries in the Index are grouped relatively closely (except for South Korea, which is positioned as the clear leader), as shown in the results for the GOV-1 indicator reported in Exhibit 5. However, Israel places at the bottom end of the range. Treaty linkages in science and technology related areas show the relationship measured falling into three groups. Treaty linkages between the U.S. and Germany are the strongest; whereas, links between the U.S. and Switzerland, Finland, Singapore, and the UAE, are the least developed. The relationships between the U.S. and Chile, Israel, and South Korea fall in the middle grouping, as in the results for the GOV-2 indicator reported in Exhibit 5. The unique political relationship between the U.S. and Israel is reflected in the data contained in indicator GOV-3, Foreign Operations Spending of the U.S. Department of State. South Korea and Israel are the only two countries compared in the Index, which benefit from operating government-supported bilateral science and technology commissions with the United States, as shown in the results for the GOV-4 indicator reported in Exhibit Highlight Discussion: Foreign Operations Spending Israel receives a significant amount of in-country U.S. government spending on programs tracked by the Department of State. Of the included countries, five received no such funding in FY2010 and Israel s total of approximately $2.8 billion was more than 1,423 times greater than that of the next largest recipient country, Chile. The relatively large amount of U.S. funds flowing to Israel is likely a reflection of the strong defense activities-related relationship between the two countries. While defense obligations represent a significant component of the overall relationship between the U.S. and Israel, some research and development support and other innovative activities are imbedded within the defense linkage Human Capital Category Metrics in the Human Capital category quantify the extent and significance of human resources-related linkages between the U.S. and target countries in science and technology related fields. The strength of the U.S. Israel relationship in Human Capital-metrics related to linkages in innovative activities leads that of all included countries in the Index, 12

17 although the assessed strength of the U.S. South Korea relationship is only slightly below that between the U.S. and Israel. Germany s relationship with the U.S. in Human Capital-related linkages is the least concentrated of any of the included countries. Exhibit 7, below, presents summary results for the Human Capital section of the Index. Exhibit 7: Summary Results Human Capital Indicators Raw Data HC-1 HC-2 HC-3 HC-4 Higher education expenditure on R&D (HERD) (as a percent of GDP) Count of article coauthorship between U.S. and target country in Science and Engineering fields Count of U.S. Doctorates awarded to foreign students from target country in S&E fields Count of number of entries to U.S. under H1-B visas by country of citizenship of visaholder Chile (2009) 2,229 (FY2010) Finland 0.76% (2010) 1,069 (2008) 5 (2009) 412 (FY2010) Germany 0.49% (2009) 9,950 (2008) 169 (2009) 8,380 (FY2010) Israel 0.54% (2010) 2,232 (2008) 69 (2009) 3,671 (FY2010) Singapore 0.63% (2009) 881 (2008) 56 (2009) 2,176 (FY2010) South Korea 0.37% (2008) 3,911 (2008) 1,174 (2009) 11,815 (FY2010) Sweden 0.91% (2008) 2,508 (2008) 16 (2009) 1,789 (FY2010) Switzerland 0.72% (2008) 3,389 (2008) 18 (2009) 1,376 (FY2010) United Arab Emirates <5 (2009) 12 (FY2010) United States 0.36% (2008) NA NA NA Benchmarked Data HC-1: Education Expenditure on R&D HC-2: Co-authorship HC-3: U.S. Doctorate Degrees Awarded HC-4: H1-B Visa Entries US South Korea Strength of Relationship Benchmark Normalization Factor Used Switzerland Finland Sweden Singapore Israel Germany South Korea Raw Data Expressed as Percent of GDP US Switzerland US Israel US Sweden US Chile US Singapore US Israel US Israel US Singapore US Finland US South Korea US Singapore US Sweden US Germany US Switzerland US Switzerland US Germany US South Korea US Chile US Sweden US Germany US Finland US Finland US UAE Population Population Population 13

18 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Human Capital Indicators Summary The Human Capital category is led by Israel and South Korea; with a secondary group of Switzerland, Sweden, and Singapore trailing the leaders as shown in Exhibit 8 below. Section 2 Section 2 Benchmarking the U.S. Israel Relationship Against Other Nations When data on higher education expenditure on research and development (HERD) a baseline resources indicator is normalized (expressed as a ratio to GDP), all countries in the Index are grouped somewhat closely, as shown in the results for the GOV-1 indicator reported in Exhibit 7. Israel places in the middle of the range. With the exception of the leading U.S. Switzerland relationship, per capita tallies of co-authored scientific journal articles between the U.S. and the target countries are also closely grouped for this indicator HC-2 as shown in Exhibit 7. The U.S. and South Korea have a strong relationship in academic exchange in science and engineering fields, as indicated by the results for the HC-3 indicator as shown in Exhibit 7. The South Korea U.S. relationship leads the benchmarked results for U.S. doctoral degrees awarded to students from the target countries, on a per capita basis; while the U.S. Israel relationship places second. The relationship between the U.S. and the European countries included in the Index trails in this indicator. Benchmarked results for H1-B entries into the United States, on a per capita basis, are closely grouped for all countries included in the Index. However, the U.S. Israel relationship leads in this indicator HC-4 as shown in Exhibit 7. This indicates a comparatively stronger relationship in technical workforce draw from Israel as well as from Singapore, which is slightly below Israel - to the U.S. than for the other countries. Exhibit 8: Aggregate Human Capital Results Israel South Korea Singapore Switzerland Sweden Finland Germany Highlight Discussion: H1-B Entries The U.S. H-1B Visa allows temporary entry into the U.S., on a non-immigrant basis, for employment in specialty occupations. A "specialty occupation" is defined as one requiring theoretical and practical application of a body of highly specialized knowledge in a field of human endeavor. 5 Example fields covered under H1-B visas include: architecture, engineering, mathematics, physical sciences, social sciences, biotechnology, and medicine. Tracking entries under H1-B visas provides an indicator to track flows of highly-skilled workforce between the U.S. and target countries. Of the countries included in the Index, South Korea, Germany, and Israel are the three countries from which the largest number of H1-B entries into the U.S. originate. 5 United States Code, Title 12, Admission of Nonimmigrants 14

19 Exhibit 9, below, plots the number of H1-B entries into the U.S. from Index countries over the most recent four years. Overall entries under H1-B visas have declined for all included countries except South Korea over the last four years for which data is available. In the most recent year, the decline shows signs of stabilizing, and entries from South Korea actually show a sharp uptick. When expressed as a percent share of total H1-B entries, declines in entries are slight for most countries, except Germany, which shows a sharp decline; and South Korea, which shows an increase. Exhibit 9: Indicator HC-4, H1-B Entries, in Time Series Entries to the U.S. Under H1-B Visas 3.00% As Percent of Total H1-B Entries % % 1.50% 1.00% % 0 Fiscal Year 2007 Fiscal Year 2008 Fiscal Year 2009 Fiscal Year % Fiscal Year 2007 Fiscal Year 2008 Fiscal Year 2009 Fiscal Year 2010 Chile Finland Germany Israel Singapore South Korea Sweden Switzerland United Arab Emirates 2.3. Private Sector and Industry Category Indicators in the Private Sector and Industry category measure industry commercialization and coordination between the U.S. and the target countries. The strength of the U.S. Israel relationship in Private Sector and Industry metrics related to commercialization and coordination in innovative activities leads that of all included countries in the Index. Finland s relationship with the U.S. in Private Sector and Industry-related linkages is the least concentrated of any of the included countries. Exhibit 10, on the following page, presents summary results for the Private Sector and Industry section of the Index. 15

20 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Exhibit 10: Summary Results Private Sector and Industry Indicators Section 2 Section 2 Benchmarking the U.S. Israel Relationship Against Other Nations Raw Data: Raw Data PSI-1 PSI-2 PSI-3 PSI-4 Industry Financed Gross Domestic Expenditure on R&D (GERD) (as percent of GDP) Magnitude of trade relationship with U.S. (imports + exports) in key knowledge-intensive industries by 4-digit NAICS codes (million US$) Imports (2010) Exports (2010) Magnitude of U.S. trade (imports + exports) in goods and services supplied to foreign persons through U.S. and foreign affiliates of multinational companies (million US$) Imports (2008) Exports (2008) Number of knowledge-intensive industry companies cross listed on stock exchanges Chile -- $24.7 $2,208.7 $217.0 $ Finland 2.70% (2009) $1,236.9 $ Germany 1.80% (2008) $22,399.9 $22,234.9 $2,093.0 $1, Israel 3.69.% (2008) $8,674.2 $2,759.2 $1,035.0 $ Singapore 1.70% (2008) $10,303.7 $12,282.9 $493.0 $ South Korea 2.45% (2008) $19,280.6 $10,886.2 $320.0 $ Sweden 2.13% (2009) $3,618.0 $2,039.6 $320.0 $1, Switzerland 2.04% (2008) $11,546.8 $4,755.0 $713.0 $1, United Arab Emirates -- $19.3 $4, United States 1.87% (2008) NA NA Benchmarked Data 16 PSI-1: Industry R&D Expenditure PSI-2: U.S. Hi-tech Trade PSI-3: Foreign Affliates Activity PSI-4: Cross-listed Companies 14 Strength of Relationship US Singapore Benchmark Normalization Factor Used Israel Finland South Korea Sweden Switzerland Germany Singapore Chile Raw Data Expressed as Percent of GDP US Israel US Switzerland US South Korea US UAE US Germany US Sweden US Chile US Finland US Switzerland US Israel US Singapore US Sweden US Germany US Chile US South Korea GDP GDP GDP US Israel US Germany US Singapore US Finland US Switzerland US Sweden 16

21 Private Sector and Industry Indicators Summary The Private Sector and Industry category is led by the relationship between the U.S. and Israel as shown in Exhibit 11 below. On average, the relative assessed concentration of the relationship between the U.S. and the target countries is lowest in this category as compared to the other three indicator categories. This perhaps suggests that collaborative linkages have the most room for growth in the Private Sector and Industry category. When data on industry-financed gross domestic expenditure on R&D (I-GERD) is compared on a normalized (expressed as a ratio to GDP) basis, it is seen that Israeli industry invests heavily in R&D relative to the other countries in the Index. This is highlighted by Israel s leadership in the results for indicator PSI-1 as shown in Exhibit 10. The magnitude of U.S. Israel trade in high-technology goods is high, placing the U.S. Israel relationship in high-technology trade near the top of the benchmarked results for indicator PSI-2 (trailing only the relationship between the U.S. and Singapore), as shown in Exhibit 10. However, the relationship between the U.S. and Singapore significantly outpaces all other included countries. Israel s strength as a high technology exporter to the U.S. is also highlighted in the results for indicator PSI-3, which compares the included countries relationship to the U.S. based on the magnitude of trade in the transactions of affiliates of multinational companies. An affiliate is a subsidiary or office of a U.S. company located in a foreign country or conversely, a subsidiary or office of a non-u.s. company located in the U.S. Affiliate transactions measures the total amount (magnitude) of trade in goods and services between affiliates. Amongst the group of countries included in the Index, there is a wide difference in the concentration of the relationship with the U.S. for indicator PSI-4, which tracks the number of dual-listed or cross-listed stocks on exchanges in the U.S. and target countries. Germany is well ahead of the other included countries, with nearly 500 dual-listed stocks (German stock on U.S. markets or vice versa). Israel ranks second with nearly 40 such listings, which is more than the total of the remaining countries combined. However, when this indicator is compared relative to GDP, Israel is benchmarked above Germany. Exhibit 11: Aggregate Private Sector and Industry Results Israel Singapore Switzerland Germany Sweden South Korea Finland

22 The U.S. Israel Innovation Index: Comparing International Linkages In Innovation Highlight Discussion: High-Technology Trade Section 2 Section 2 Benchmarking the U.S. Israel Relationship Against Other Nations The Private Sector and Industry category of the Index includes two indicators, PSI-2 and PSI-3, which measure trade flows in high technology goods and/or services between the U.S. and the included countries. Data for both indicators suggest that Israel shows strength (relative to many of the other included countries) as an exporter of high-technology goods and services to the U.S. The trade balance in overall high-technology goods between the U.S. and Israel distinctly leans towards Israeli exports (U.S. imports). Data for indicator PSI-2 shows that Israel has the third largest surplus of trade with the U.S. amongst the included countries, totaling approximately $5.9 billion in In absolute terms (raw data), the country with the largest trade surplus with the U.S. was South Korea, which had a positive high-technology goods trade balance with the U.S. of $8.4 billion in However, the South Korean economy was approximately 4.7 times larger than Israel s economy in Indicator PSI-3 measures trade flows in affiliate transactions within multinational companies in high-technology goods and services. Within affiliate transactions, Israel had a positive trade balance in 2008 (the most recent data available as of September 1, 2011) with the U.S. of more than $800 million the highest raw total within the group of included countries. In the next closest country Germany transactions between affiliates represented a trade surplus of $725 million. For contrast, the German economy was approximately 14.7 times larger than Israel s in Research and Development Category Metrics in the Research and Development category assess R&D collaboration between the U.S. and the target countries. The statistics are cross-cutting, quantifying activity levels across government, industry, and academia. The strength of the U.S. Israel relationship in the Research and Development linkage metrics category falls between that of U.S. German and Swiss relationships and that of the U.S. South Korean and Singaporean relationships. Exhibit 12, on the following page, presents summary results for the Government section of the Index. 18

23 Exhibit 12: Summary Results Research and Development Indicators Raw Data R&D-1 R&D-2 R&D-3 R&D-4 Gross domestic expenditure on R&D (as percent of GDP) Tabulates total R&D performed by U.S. affiliates of foreign companies in the United States by country, and vice-versa (US$, million) Measures collaborative patent applications (i.e., applications from multinational teams including target country) to the USPTO Patent applications to USPTO and patents granted to U.S. by National Patent Office, by nationality of first-listed inventor (most recent year available) Chile -- $48 (2007) 5 (2010) 1,133 Finland 3.84% (2010) $774 (2008) 29 (2010) 1,159 Germany 2.78% (2009) $12,559 (2008) 1,014 (2010) 16,011 Israel 4.25% (2010) $1,261 (2008) 347 (2010) 4,434 Singapore 2.35% (2009) $741 (2008) 107 (2010) 4,043 South Korea 3.36% (2008) $1,227 (2008) 128 (2010) 22,399 Sweden 3.62% (2009) $1,897 (2008) 350 (2010) 1,479 Switzerland 3.00% (2008) $8,049 (2008) 246 (2010) 1,669 United Arab Emirates -- $4 (2008) 4 (2010) 7 United States 2.79% (2008) NA NA NA Benchmarked Data R&D-1: R&D as Percent GDP R&D-2: R&D Spend of Foreign Affliates R&D-3: USPTO Co-Patents R&D-4: Total Patent Activity Strength of Relationship US Switzerland US Germany Benchmark Normalization Factor Used Israel Finland Sweden South Korea Switzerland Germany Singapore Chile Raw Data Expressed as Percent of GDP US Switzerland US South Korea US Israel US Israel US Israel US Sweden US Singapore US South Korea US Germany US Finland US Sweden US Singapore US Singapore US Chile US Finland US Germany US South Korea US Chile US Switzerland US UAE US UAE US UAE GDP Population GDP 19