Between 1961 and 1985, the annual domestic patent application count in the U.S. varied within a narrow range of 59,000 and 72,000. Patent applications have risen dramatically in the last decade by 70 percent, reaching 124,000 in 1995. Patents granted have risen commensurately. In this paper, we decompose the increase in patenting and in patenting propensity (measured as the patent/R&D ratio) into various components. We find that about 30 percent of the increase in patents granted from 1983 to 1992 is attributable to the rise in patent propensity, and the remaining 70 percent is attributable to the increase in and the cross-industry shift of R&D expenditures. Our results also indicate that the increase in the number of patents granted in the U.S. per aggregate R&D spending is mainly due to a general increase in the patent propensity across industries. While there has been a substantial reallocation of R&D resources, it has been toward low patent propensity industries. This reallocation has depressed the aggregate patent/R&D ratio.
