Research and development expenditure as percentage of GDP in selected economies FIGURE 7 5% 4%6%R&D expenditures as percentage share of GDP 2000 2002 2004 2006 2008 2010 20122%3% 1% 0% 2014 2016 2020 2022 2018 China USA South Korea Japan EU Source: World Bank. (2024, data covering 2000 to 2021). Research and development expenditure (% of GDP); Eurostat. (2024). Research and development expenditure in the EU; Moris F., Rhodes, A. (2024). Research and Development: U.S. Trends and International Comparisons; U.S. National Science Foundation; Statista. (2024). China research and development spending ratio to GDP; Statista. (2024). Research and development spending as a share of gross domestic product (GDP) in South Korea from 2015 to 2022; Statistics Bureau of Japan. (2023). Science and technology research data. One of the factors contributing to the EU’s innovation gap is its low investment in R&D. Overall, the EU spends less of its GDP on R&D than China, South Korea, Japan and the US. According to the European Commission, European companies spend 59% of their R&D budgets in the EU, compared to US companies spending 63% in the US.83 Asian companies spend even more of their R&D budgets domestically, spending 76%, 77% and 79% in China, South Korea and Japan, respectively.84 In addition, European companies’ share in global R&D has been declining since 2012.85 Surveyed companies quote the regulation of business as the top barrier to increasing their investments in Europe.86 The EU has prioritized comprehensive regulatory frameworks imposing strict compliance requirements87 that increase the cost of compliance.88 To further understand the European innovation gap, it is worth looking at the innovation potential and business complexity of the EU.89 Innovation potential is based on science and innovative investments, technological progress, technology adoption and socioeconomic impact of innovation.90 Business complexity refers to the complexity of establishing and operating business.91 Overall business complexity in the EU is slightly lower than in South Korea and China, but complexity is high in its largest economies, namely France, Italy and Germany. For both innovation potential and business complexity, there is a high variance between individual EU member states, suggesting that there are best practices in some states that can be replicated across the bloc. Delivering on the European Green Deal: A Private Sector Perspective 15

Delivering on the European Green Deal A Private Sector Perspective 2025