Australia is trailing the rest of the developed world in research funding, the major university lobby says.

Universities Australia says the government and business sectors are ignoring higher education, with overall funding for research and development below 2 per cent of the total economy.

The group says gross expenditure on research and development as a percentage of GDP fell from 2.11 per cent in 2013-14 to 1.88 per cent in 2015-16 – going backwards for the first time.

The OECD average is 2.38 per cent. The UK government recently pledged to lift R&D funding to 2.4 per cent over the next decade.

Business expenditure on R&D dropped by 12 per cent between 2013-14 and 2015-16, or about $2.2 billion, Universities Australia says.

“The world’s leading economies know just how important R&D is and are investing accordingly,” the chief executive of Universities Australia, Catriona Jackson, said.

The house committee on education, employment and training is holding an inquiry into Australia’s research system.

The review will look at the “efficiency, effectiveness and coherency of Australian government funding for research”, including federally-funded research agencies, their funding mechanisms and university research.

Universities Australia’s submission to the inquiry urges the government to address the fall in spending by injecting money back into the education investment fund.

The $3.8 billion fund was shuttered in 2015 to redirect money into the National Disability Insurance Scheme.