BEAs R

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BEAs RD Satellite Account and the
Capitalization of RD in the National Accounts
Carol A. Robbins Bureau of Economic
Analysis AUBER Fall Conference, Pensacola Florida
October 15, 2007
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Purpose of RD Satellite Account

• Treat RD as investment in an experimental
  framework
• Part of broader BEA program to improve measures
  of intangibles in national accounts
• The importance of updating economic measurements
  given advances in the knowledge economy
• The challenges in measuring intangibles
• Both conceptual and data-related

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The Importance of Updating Economic Measurements
Past Efforts
Note Data through the final estimate of 2007Q2
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Why Recognize RD as Investment?

• Economic theory
• Expenditures on tangible and intangible products
  that reduce current consumption in order to
  increase future output should be treated as
  investment
• National Accounting Consistency
• Most RD activities have the qualities of a
  produced asset
• Improved measurement of RD important for
• Identifying sources of economic growth
• Monetary, tax, regulatory and other policies
  through improving the accuracy of GDP estimates
• Why RD at this point?
• Good data on RD expenditures collected by the
  National Science Foundation for over 50 years

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Where Does RD currently show up in the
components of GDP?

• Personal consumption expenditures
• Gross private domestic investment
• Fixed investment
• Nonresidential
• Structures
• Equipment and software
• Residential
• Change in private inventories
• Government consumption expenditures and gross
  investment
• Federal
• State and local
• Net exports of goods and services
• Exports
• Imports

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Changes to National Accounts
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New in the 2007 Release

• Satellite account extended two years 1959-2004.
• Building on 2006 SA, includes several
  enhancements
• Improved measures of prices for RD.
• Adjusts RD investment for international trade in
  RD services.
• Adjusts for the double-count with previously
  capitalized RD in software investment.
• Includes a preliminary estimate of RD investment
  in social sciences based on Economic Census data.

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New in the 2007 Release (contd)

• First look at industry-level estimates of RD
  investment (1987-2004).
• Impact of RD as investment on gross output and
  value added for 13 detailed industries.
• Industry-specific rates of depreciation.
• RD adjusted rates of return to broad industry
  groups.
• First look how the international and regional
  accounts would implement the capitalization of
  RD.

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Results of 2007 RD Satellite AccountGDP and
Economic Growth

• Very similar picture to 2006 vintage
• Investment in RD totaled 317 billion in 2004.
• Recognizing RD as investment
• Increases GDP by an average of 2.9 percent
  between 1959 and 2004 (0.3 percentage upward
  revision from 2006 vintage).
• Increases average real GDP growth rate from 3.2
  to 3.3 between 1995 and 2004.

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RD Investment as a Percent of Adjusted
GDP1959-2004
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Addition to GDP from RD Investment
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Industry Impacts

• Impacts industry gross output and value added.
• Business investment in RD by industry split
• Own account
• Purchased RD
• Purchased RD adjusted from a cost basis to an
  imputed purchase price basis.
• Purchases of nonscientific RD added.

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Industry Detail Major US RD Performers
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Sources of Business RD's Contribution to Real
GDP Growth, 1995-2004
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Trends in top four RD producing industries
of Private Business Investment in RD
2004
1987
Pharmaceuticals 20.0
Motor Vehicles 11.4
Aerospace 11.0
Semiconductors electric components 8.8
Semiconductors electric components, 9.4
Motor Vehicles 8.3
Pharmaceuticals 8.0
Software publishers 8.1
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International Issues

• International
• How to distinguish transfers of ownership of RD
  capital from limited rentals of rights to use RD
  capital
• How to treat the sharing of RD capital among
  different parts of a multinational corporation
• Regional to follow

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RD Capitalization in Other Countries

• The upcoming System of National Accounts revision
  is likely to adopt capitalizing RD
• Many countries have created satellite accounts
• Australia, Denmark, Israel, Netherlands, United
  Kingdom, United States
• More are measuring RD investment
• France, Germany, Japan, Korea, Sweden, Finland
• Several countries plan to incorporate RD in
  their core accounts in the future
• Australia, Canada, United Kingdom and the United
  States

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Looking Ahead

• Address the asset boundary/freely available RD
  issue
• Greater industry detail for service sector RD
• Depreciation rates for government RD?
• Slower depreciation for basic?
• Data quality issues
• Better measures of capital inputs
• Company to establishment data
• Quarterly indicators