Title: R
1RD as a Value Creating Asset
- Emma Edworthy
- Gavin Wallis
2Methodological Overview Linking Tables
- UK Business RD linking Tables
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MINUS -
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PLUS -
PLUS
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BERD
Capital expenditure on land and buildings and
plant and machinery
Acquisition of RD to be used as input in RD
production
Capital Services
3Methodological overview Freely available RD
- Canberra II group made the following
recommendation - In principle, freely available RD should not
be included as Capital formation, but in practice
it may not be possible to exclude it. The
assumption is that including freely available RD
would not lead to significant error. - On the basis that it is too difficult to separate
it out, the UK are going to include all freely
disseminated RD. -
4Methodological overview Double Counting
- Computer software software development outside
the computer industry is likely to be picked up
in the BERD and own account software numbers - GFCF
- 1. Estimates from surveys collecting data on GFCF
(CAPEX, ABI) will include some intellectual
property - 2. Not all expenditure by companies in the RD
industry will result in intellectual property.
They will also invest in furniture and fittings
etc. -
5Current Price GFCF
6Current Price GFCF
- We use three different methods for calculating
the capital service flows from other asset
classes - Method 1 Consumption of Fixed capital (COFC)
plus an assumed return - Method 2 Capital services estimated using
rentals - Method 3 Capital services estimated using
capital services growth rates
7Current Price GFCF
- Method one is a proxy estimate of Capital
services - In methods two and three the capital service
flow from the asset used in RD is measured
directly. - Capital services growth rate is a much more
common output of statistical offices than
estimated rental rates. - UK currently publishes capital services growth
rates annually, but not rentals. - Methods two and three are preferred on
theoretical grounds, as they directly measure
capital services flows. Which is best?
8Constant Price GFCF
RD component Proxied by Source
Wages and salaries Index of earnings of science and technology Professionals Index of average earnings of technicians Index of average earnings of Administrative occupations ASHE
Other current (materials etc) PPI (input) materials and fuels purchased by manufacturing excluding FBTP PPI
Capital Separate index for plant and machinery and land and buildings National Accounts capital stock deflators
9Constant Price GFCF
10Depreciation rate
- In calculating an RD stock, we use the
Perpetual Inventory model. -
- We made the following assumption about the net
capital stock in the initial year, assuming a
steady state.
11Depreciation rate
- We estimated a depreciation rate for the whole
economy using econometric methods. - Looked at the impact past RD had on productivity
(GVA at market prices) - We estimated the following
12Depreciation rate
- Our preliminary results were run for the period
1998-2003
Gva_diff coefficient Standard error t
L1 -0.770473 7.516772 -0.01
L2 -18.89507 10.71141 -1.76
L3 42.80761 10.53161 4.06
L4 -26.19576 10.39732 -2.52
L5 2.838254 8.741311 0.32
13Depreciation Rate
- Suggest a life length mean of 5 years
- Depreciation is calculated as follows
- Where R is the declining balance rate
(equal to 2) and T is the life length mean (5) - Implies a depreciation rate of 40
- We recognise that this is a very crude method. It
is just an early investigation in to a possible
approach. - The approach taken could provide sensible
estimates of depreciation following more
development
14Results Current price Business GFCF
- The results from the three methods are quite
similar -
Year MA14 Total RD expenditure Method 1 Method 2 Method 3
2003 13.7 15.1 15.1 14.6
2002 13.1 14.9 15 14.5
2001 12.3 13.5 13.4 13.1
2000 11.5 12.4 12.5 12.1
1999 11.3 12.5 12.7 12.3
1998 10.1 10.9 11.1 10.8
1997 9.5 11.3 10.4 11.2
15Results Business RD Capital stock
16Preliminary Productivity Analysis Firm Level
- Where
- y value added
- n labour
- tangible capital
- a impact of external knowledge on the firms
productivity - RD
- e error term
- D Service industry dummy
17Preliminary Productivity Analysis
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- significant at 1 level
- significant at 5 level
- Significant at 10 level
Employment 0.71 (40)
Tangible Capital 0.25 (19)
RD Capital stock (RD) 0.08 (11)
Services dummy 0.17 (4.4)
ServicesRD 0.01 (3.2)
Patent Dummy 0.08 (4.0)
Domestic Dummy 0.05 (2.5)
Patent dummyRD 0.0 (0.05)
UK dummyRD 0.005 (2.01)
US dummyRD 0.007 (2.23)
Japan dummyRD 0.01 (1.38)
EU dummyRD 0.00 (-1.82)
18Preliminary Productivity Analysis
- Our analysis considers the link between the level
of value added and the level of RD - By estimating the Cobb Douglas production
function we obtained a coefficient on RD that
represents the elasticity of RD with respect to
TFP i.e. the change in productivity for a
change in RD - The estimates of RD elasticity is 0.08. This
implies that a 10 increase in BERD is associated
with a productivity increase of 0.8. - Average difference between the impact of services
and manufacturing on productivity. Services firms
are on average more productive.
19Preliminary Productivity Analysis
- Interacting services and the RD capital stock
suggested that an increase in RD capital stock
leads to a bigger increase in productivity for
Services than manufacturing. - Sector breakdown An increase in the RD capital
stock in services and primary industries leads to
a larger increase in productivity than
manufacturing. - Whereas construction and energy have a negative
impact compared to manufacturing.
20Preliminary Productivity Analysis
- The addition of dummies for patented industries
and foreign ownership showed that patented firms
and UK firms add more to productivity. - RD coefficient on RD capital stock still
remains significant after the addition of the
patent dummy. - UK owned, manufacturing firms in the patent
industry add most to productivity. - However, interacting the patent and foreign
owned dummies with the RD capital stock showed
that there was no additional affect from being a
UK firm or in a patent industry. - UK owned firms and US firms have an additional
effect from an increase in the RD capital stock
on productivity over and above the rest of the
world.