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Experimental Industry Estimates in BEA’s R&D
Satellite Account
Carol A. RobbinsIndustry Accounts Data Users Meeting
October 26, 2007
www.bea.gov 2
Purpose of R&D Satellite Account
Treat R&D 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
www.bea.gov 3
The Importance of Updating Economic Measurements – Past Efforts
Note: Data through the final estimate of 2007Q2
$0
$2
$4
$6
$8
$10
$12
$14
$16
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
[GDP, Trillions of dollars]
1985 ― Worked with IBM to develop more accurate, quality-adjusted, computer prices.
2003 ― Share of GDP using quality-adjusted prices rises to nearly 1/5 of GDP.
2001 ― Introduced quality-adjusted prices for LANs
1999 ― Recognized investment in software and Introduced new services measures that capture the effect of new technology.
1996 ― Introduced chain-type measures of real GDP that better reflect the prices of high-tech and introduced new semi-conductor prices.
2006 – BEA published preliminary R&D accounts
2007 – BEA published updated R&D accounts
www.bea.gov 4
Why Recognize R&D 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 R&D activities have the qualities of a produced asset
Improved measurement of R&D important for: Identifying sources of economic growth Monetary, tax, regulatory and other policies through
improving the accuracy of GDP estimates
Why R&D at this point? Good data on R&D expenditures collected by the National
Science Foundation for over 50 years
www.bea.gov 5
Where Does R&D 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
www.bea.gov 6
Changes to National Accounts
Gross Domestic Product Gross Domestic Income
Treatment in Current
Measure of GDP Adjusted GDP
Change in Current Measure
of GDP Adjusted GDI
Capitalizing R&D Change in Current
Measure GDI
R&D Imputations, R&D performed by:
Business Intermediate Reallocate to investment Increase Increase in profits Increaseinput and depreciation
Nonprofit Consumption 1) Reallocate to investment No change Increase in IncreaseInstitutions (PCE) 2) Increase consumption = Increase returns to R&D
Returns to R&D capital capital
General Government 1) Reallocation to investment No change Increase in IncreaseGovernment consumption 2) Increase consumption = Increase returns to R&D
Returns to R&D capital capital
www.bea.gov 7
New in the 2007 Release Satellite account extended two years:
1959-2004. Building on 2006 SA, includes several
enhancements: Improved measures of prices for R&D. Adjusts R&D investment for international
trade in R&D services. Adjusts for the double-count with previously
capitalized R&D in software investment. Includes a preliminary estimate of R&D
investment in social sciences based on Economic Census data.
www.bea.gov 8
New in the 2007 Release (cont’d)
First look at industry-level estimates of R&D investment (1987-2004). Impact of R&D as investment on
gross output and value added for R&D-intensive industries
First look how the international and regional accounts would implement the capitalization of R&D.
www.bea.gov 9
Industry Detail : R&D Intensive Industries
Manufacturing Detail: Chemical excluding Pharmaceutical
Pharmaceutical and medicine
Computer & electronic products
Communications equipment
Semiconductors
Navigational/measuring/medical/control instruments
Motor vehicles, trailers and parts
Aerospace and other transportation equipmentServices Detail:
Software publishing
Computer systems design and related services
Scientific R&D services
www.bea.gov 10
Industry Impacts
Impacts industry gross output and value added.
Business investment in R&D by industry split: Own account Purchased R&D
Purchases of nonscientific R&D added.
www.bea.gov 11
Trends in top four R&D producing industries
[% of Private Business Investment in R&D]
Motor Vehicles 11.4%
Motor Vehicles 8.3%
Aerospace 11.0%
Semiconductors& electric components, 9.4%
Pharmaceuticals 8.0%
Semiconductors& electric components 8.8%
Software publishers 8.1%
Pharmaceuticals 20.0%
1987 2004
www.bea.gov 12
Business R&D Investment's Contribution to Real GDP Growth, 1987 to 1995 and 1995 to 2004
0.00
0.02
0.04
0.06
0.08
0.10
0.12
0.14
0.16
0.18
1987-1995 1995-2004
TransportationEquipmentManufacturingR&D
InformationCommunicationTechnologyProducingIndustries R&D
BiotechnologyR&D
All Other IndustryR&D
3.5% of real GDP growth(0.10 percentage point out of 2.8 percent real GDP grow th)
4.6% of real GDP growth (0.16 percentage point out of 3.3 percent real GDP growth)
www.bea.gov 13
Company to Establishment AdjustmentWhere within pharmaceutical and medicine
manufacturing companies is R&D performed?
All Other Primary (Pharma & Medicine)
Management of Companies
Wholesale Trade
All Other Chemical
Scientific R&D Services
Nav/Measuring/Medical/ Control
Instruments mfg
What we know: company employment by type of establishment
www.bea.gov 14
Example: Pharmaceutical and Medicine Manufacturing: 2004 $billions
Unadjusted
Adjustment
Adjusted
Gross output 155.4
Plus: Own account R&D 10.9
Less: own account R&D software double-count
(0.1)
Gross Output 166.2
Intermediate Inputs 83.7
Less: Purchased R&D 29.7
Intermediate Inputs 54.0
Value Added 71.7 112.2
Addendum: R&D investment 40.6
www.bea.gov 15
Upcoming Conceptual and Data Challenges for the Industry
Estimates Company to Establishment
Conversion R&D investment in humanities, social
sciences, and other non-science areas
Improving inter-industry and inter-sector sales and purchases
Incorporate into the Benchmark Framework