As with other types of investment, expenditures in R&D and innovation are pro-cyclical – they are positively related to an economy’s level of activity. R&D financed by the business sector is particularly affected by the business cycle and reflects changes in financing constraints and aggregate demand. The major drop in GDP and business R&D in 2008-09 was partly balanced by a boost in government-funded R&D. From 2010, business-funded R&D has recovered, while in turn direct government funding of R&D has declined, reflecting budget consolidation policies. Since 1985, the components of R&D have evolved differently. Across all sectors, applied research and experimental development have more than doubled in real terms since 1985. These account for most of R&D expenditures (21% and 62% of GERD, respectively in 2013, but more so in China at 11% and 85%). Basic research (17%) has nearly quadrupled over the period, driven by sustained growth in R&D within higher education. Behind these general trends lie diverse sectoral patterns, suggesting increasing sectoral specialisation in the types of R&D performed. This picture may hint at an increasing gap between basic research and the development of new products and processes.