The latest data available on the state distribution of R&D performance are for 2001. R&D, like other economic activities, is concentrated in a handful of states. Patterns of R&D activities vary considerably among these top R&D-performing locations. In 2001 total U.S. R&D expenditures were $274 billion, of which $256 billion could be attributed to expenditures within individual states, with the remainder falling under an undistributed "other/unknown" category (appendix table B-17). These totals include R&D performed by industry, universities, Federal agencies, and nonprofit organizations.
In 2001 the 20 highest-ranking states in R&D expenditures accounted for 85 percent of U.S. R&D expenditures, whereas the 20 lowest ranking states accounted for only 5 percent. The five states with the highest levels of R&D expenditures (in decreasing order of magnitude) were California, Michigan, Massachusetts, New York, and Texas, and they accounted for over 40 percent of the entire national effort. The top 10 states, which included New Jersey, Maryland, Pennsylvania, Illinois, and Washington (ranked 6th through 10th), accounted for almost two-thirds of U.S. R&D expenditures in 2001 (table 12). California alone accounted for one-fifth of the $256 billion U.S. R&D total, exceeding the next highest state by over a factor of three.
States vary significantly in the size of their economies because of differences in geographic location, population, land area, infrastructure, natural resources, and history. Consequently, state variations in R&D expenditure levels may simply reflect differences in economic size or the nature of their R&D efforts. One way to control for the size of each state's economy is to measure each state's R&D level as a percentage of its gross state product (GSP). Like the ratio of industrial R&D to net sales, the proportion of a state's GSP devoted to R&D is an indicator of R&D intensity. New Mexico, one of the smaller states in terms of GSP, had the highest R&D/GSP of any state in 2001 (table 12), attributable to the activities of Los Alamos National Laboratory and Sandia National Laboratory, which together accounted for approximately three-fourths of the state's R&D. A list of states and corresponding R&D intensities can be found in appendix table B-17.
Although leading states in total R&D tend to be well represented in each of the major R&D-performing sectors, the proportion of R&D performed in each of these sectors varies across states. States that are national leaders in total R&D performance are usually leaders in R&D performance by industrial sector, which is not surprising because industry-performed R&D accounts for 74 percent of the distributed U.S. total. University-performed R&D accounts for only 13 percent of the distributed U.S. total and is highly correlated with the total R&D performance in a state.
Federally performed and FFRDC R&D has less of a correlation with total R&D performance in a state. Only 4 of the top 10 states ranked by Federal intramural and FFRDC R&D are among the top 10 states by total R&D: Maryland, California, Illinois, and Massachusetts. Maryland ranked first in Federal intramural and FFRDC R&D performance, followed by California, New Mexico, Virginia, and the District of Columbia. The inclusion of Maryland, Virginia, and the District of Columbia in the top five ranking reflects the concentration of Federal facilities and administrative offices within the national capital area. Alabama, Florida, and New Mexico rank among the highest in Federal intramural and FFRDC R&D because of their relatively high shares of Federal space- and defense-related R&D.
The types of companies performing R&D vary considerably among the 10 leading states in industrial R&D (table 13). This reflects regional specialization or clusters of industrial activity. For example, in Michigan manufacturing industries accounted for 93 percent of industrial R&D in 2001. This reflects a high concentration of transportation equipment manufacturers, which accounted for 78 percent of Michigan's industrial R&D in 2001, whereas this industry accounted for only 13 percent of the nation's total industrial R&D. Washington, having a high concentration of software R&D, has less of its industrial R&D concentrated in manufacturing industries than the nation as a whole. Over half the nation's software industry R&D is carried out by companies in California and Washington.
The computer and electronic products industry accounts for 24 percent of the nation's total industrial R&D but accounts for a larger share of the industrial R&D in Massachusetts (42 percent) and Texas (42 percent). These two states along with California perform over 40 percent of the nation's computer and electronic products R&D. These three states have clearly defined regional centers of high-technology research and manufacturing: Silicon Valley in California, Route 128 in Massachusetts, and the Silicon Hills of Austin in Texas.
In addition, New York, New Jersey, and Pennsylvania, each home to robust chemical, including pharmaceutical, manufacturing industries, show much higher concentrations of R&D in these industries than the nation as a whole. Of course, other factors besides the location of industrial production also play a role in the location of industrial R&D activities. For example, industries tend to perform research near universities that conduct the same type of research, enabling them to benefit from local academic resources. This may explain why California and Massachusetts together account for over half of the nation's R&D in the scientific R&D services industry.
 Reliability of the estimates of industrial R&D varies by state because the NSF Survey of Industrial Research and Development was not designed to produce estimates at that level of geographic detail in 2001. Rankings do not take into account the margin of error of estimates from sample surveys.
 Gross state product (GSP) is often considered the state counterpart of the nation's GDP. GSP is estimated by summing the value added of each industry in a state. Value added for an industry is equivalent to its gross output (sales or receipts and other operating income, commodity taxes, and inventory change) minus its intermediate inputs (consumption of goods and services purchased from other U.S. industries or imported). U.S. Bureau of Economic Analysis, Gross State Product by Industry for 2001: U.S. Economic Slowdown was Widespread (Washington, DC, 2003). (See http://www.bea.gov/bea/newsrel/gspnewsrelease.htm.)
 Federally performed R&D includes costs associated with the administration of intramural and extramural programs by Federal personnel as well as actual intramural performance.