Increased spending by businesses helped boost New Zealand's total research and development expenditure 20 per cent since 2014, but the country still lags behind the average for the Organisation for Economic Cooperation and Development.

Total R&D expenditure hit $3.2 billion as businesses spent 29 per cent more than they did in 2014, higher education invested 18 per cent more and the government spent 5 per cent more. The Statistics New Zealand survey is conducted every two years.

According to Stats NZ, total R&D as a proportion of gross domestic product increased to 1.3 per cent in 2016, up from 1.2 per cent in 2014. The OECD average is 2.4 per cent. Business investment in R&D, however, was 0.6 per cent of GDP, up from 0.5 per cent in 2014.

Innovation is seen as one of the ways to lift New Zealand's productivity levels, which has been more difficult to achieve given the nation's relatively small economy and distance from other markets. Last year, then Innovation Minister Steven Joyce flagged an extra $410.5 million to fund science projects over the following four years as part of his drive to grow business investment in R&D to more than 1 per cent of the economy.

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In 2016, businesses spent a total of $1.6b on R&D, up $356m from 2014. This change was driven by the services and the manufacturing sectors, up 32 per cent and 29 per cent, respectively. The computer services industry, which includes businesses involved in software production or web design, had the largest growth in R&D spend, up 40 per cent from 2014

In contrast, the government and higher education sectors showed more modest growth in R&D spend - a $32m increase for government spending and a $143m increase for higher education spending.

Twenty percent of all R&D was to improve or develop manufacturing processes in 2016, Stats NZ said. Government spending on R&D was largely for primary industries and environment, and higher education expenditure was focused on health research.

Meanwhile, businesses remained upbeat about future spending. In 2016, 85 per cent of businesses undertaking R&D activity expected their future R&D spending to stay the same or increase, up from 81 per cent in 2014. Only 9 per cent of businesses expected R&D spending to decrease in the future, down from 13 per cent in 2014.

In 2016, 54,500 people were involved in R&D, up from 51,600 in 2014. The increase was mainly driven by more researchers in the business sector.