The U.S.R&D Satellite Account:Measurement Issues and R&D Satellite Account Methodology

Sumiye Okubo R&D Conference

December 13, 2006

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Goals of Conference

Solicit advice on conceptual framework and estimation methods To extend 2006 R&D satellite account

methodology to improve 2007 estimates To improve framework and data sources

in order to incorporate R&D into the national accounts over the next five years

Several thorny issues

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Purpose of R&D Satellite Account

Treat R&D as investment R&D creates a future stream of benefits Appropriable R&D has the qualities of

an economic asset

Part of BEA program to improve measures of intangibles in national accounts

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Changes in National Accounts

Capitalizing R&D expands scope and rearranges the accounts: R&D expenditures funded by business

reclassified from intermediate inputs to business investment, and business income rises

R&D expenditures funded by Nonprofits and Government transferred from consumption to investment

Services of nonprofit and government R&D capital increase

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Overview of Estimation Method for R&D Stocks

Sum input costs Include a charge for depreciation

of fixed assets Assign investment to owning

sector using funder information Deflate nominal investment Create capital stocks with

perpetual inventory method

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Impact on Investment and Saving

Capitalizing R&D raised Current dollar gross private domestic

investment by 11 percent in 2002 Adjusted national savings rate 2

percentage points, from 14 percent to 16 percent in 2002

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Impact on Growth

Capitalizing R&D increases current GDP by 2 ½ percent and real GDP growth by a tenth of a percentage point

R&D investment accounts for 4½ percent of real GDP growth between 1959-2002

R&D investment accounted for 6½ percent of real GDP growth between 1995-2002

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Impact on Profits/Gross Operating Surplus

Treating R&D as investment rather than intermediate inputs Increases investment and GDP Raises Gross Operating Surplus and

GDI Increases the share of gross operating

surplus to GDI 2 percentage points from 36 percent to 38 percent.

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Impact on Government and Non-Profits

NIPAs include only CFC for capital investment of government and nonprofits

The 2006 R&D Satellite Account adds a net return to government and nonprofits

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Schedule

Feasibility Study of Industry R&D Satellite Account, Spring 2007

Revised R&D Satellite Account, September 2007

Between 2007-2012, new source data and extensions to other account areas

BEA plans to incorporate R&D into the I-O accounts in 2012 and the NIPAs in 2013

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Issues to be addressed

Measuring R&D Measuring R&D investment returns Measuring R&D capital services

and the production account

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Measuring R&D

Valuation in current and real dollars Cost approach Comparable market value approach Income or present discounted value

approach Market valuation and spillovers

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Measuring R&D Investment Returns

Rate of return across asset types Rate of return to government and

nonprofit R&D Depreciation

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Measuring R&D Capital Servicesand the Production Account

Net rates of return Earnings of R&D assets versus other

assets Ex ante versus ex post approach

Asset boundaries and double counting Scope of R&D

Ownership Assignment of ownership to funders

rather than performers

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Other issues?

Are there other issues that have not been raised that BEA should consider?