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R&D expenditure and capital in Europe
Hubert StraussEconomic & Financial Studies
European Investment Bank, Luxembourg
COINVEST Academic ConferenceLisbon, 18 March 2010
18/03/2010 2
Overview
R&D expenditure: Basic facts
R&D: From expenditure to capital stocks
Business R&D capital stock estimates…
…across countries
…across industries
…relative to value added
…relative to the tangible capital stock
…and how they are correlated with TFP
18/03/2010 3
Basic facts on R&D expenditure (1)
R&D expenditure by sector (% of GDP), 2000-07
0.0
0.5
1.0
1.5
2.0
2.5
3.0
EU US Japan
Source: Eurostat
Government and Higher education
Business sector
18/03/2010 4
Basic facts on R&D expenditure (2)
0.0
0.5
1.0
1.5
2.0
2.5
3.0
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
Japan
US
EU
Business R&D expenditure (% of GDP)
Source: Eurostat
18/03/2010 5
Basic facts on R&D expenditure (3)Industry shares in EU total business R&D expenditure, 2005
Chemicals & Pharmaceuticals19%
Transport equipment25%
ICT and other equipment 29%
All other27%
Source: OECD, own calculations
18/03/2010 6
From R&D expenditure to capital stocks
Capitalisation rate: 100%
Deflation of R&D expenditure: GDP deflator
Geometric depreciation: 12%
Initial capital stock: “First-7-years-growth” assumption
Data source: R&D expenditure from OECD ANBERD
Existing work EU-KLEMS R&D capital stocks for 15 countries 2003
Our workWe updated EU-KLEMS R&D capital stocks to 2005/06
We estimated R&D capital stocks for 7 more countries
ttt IrateondepreciatiKK 1
(PIM)methodinventoryPerpetual
1
18/03/2010 7
Business R&D capital stock estimates
0
2
4
6
8
10
12
14
16
18
EU US Japan
in % of GDP, 2005
Source: OECD, EU-KLEMS and own calculations
18/03/2010 8
R&D capital stocks across countries
0
5
10
15
20
25
EL TR PL PTHUSK ES IT IE CZ SI UKNL EUBE FR USDKDE FI JP AT SE
% of GDP, 2005
Source: OECD, EU-KLEMS and own calculations
18/03/2010 9
Different growth speeds of R&D capital stocks
100
120
140
160
180
200
220
240
260
280
300
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
FI
DK
ES
SE
FR IT
UK
Index 1995=100 for each country
Source: OECD, EU-KLEMS and own calculations
DEEU
18/03/2010 10
More of a standstill than convergence
-2
-1
0
1
2
3
4
5
6
7
8
0 2 4 6 8 10 12 14 16
R&D-capital stock/GDP(%), 1995
Cum
ulat
ive
chan
ge 1
995-
2005
, %
-poi
nts
“Speeding ahead”“Catching up”
“Falling behind”
US
SE
JP
NL FR
FI
DE
UK
BE
IE
IT
DK
PT ES
EL
EU average
EU average
“Losing steam”
Source: OECD, EU-KLEMS and own calculations
18/03/2010 11
Business R&D capital stock estimates
0
2
4
6
8
10
12
14
16
18
EU US Japan
in % of GDP, 2005
Source: OECD, EU-KLEMS and own calculations
18/03/2010 12
R&D capital stocks by industry
0
2
4
6
8
10
12
14
16
18
EU US Japan
Other manuf.
Other
Transport
Chemicals&Pharma.
ICT&other equip.
Services
in % of GDP, 2005
Source: OECD, EU-KLEMS and own calculations
18/03/2010 13
R&D capital intensities
R&D capital stock (in % of industry’s output), EU, 2005
0
20
40
60
80
100
120
140
Chemicals & Pharma.
Transport equipment
ICT & other equipment
US
Source: OECD, EU-KLEMS and own calculations
Other
Total
18/03/2010 14
R&D-capital to tangible-capital ratio, 2005
Source: OECD, EU-KLEMS and own calculations
0
1
2
3
4
5
6
7
8
9
JP US EU SE FI AT DE UK DK SI NL IT CZ PT
% o
f to
tal t
an
gib
le c
ap
ita
l
18/03/2010 15
R&D capital intensities and R&D capital ratios, EU, 2005
0
2
4
6
8
10
Other Manufacturing Other (Utilities andConstruction)
Services
R&D-capital ratio R&D-capital intensity
0
20
40
60
80
100
120
Chemicals and
Pharmaceuticals
ICT and other non-
transport equipment
Transport Equipment
Per
cen
t
R&D-capital ratio R&D-capital intensity
Source: OECD, EU-KLEMS, own calculations
18/03/2010 16
Connection between R&D capital and productivity
Average TFP growth (%), 1991-2005
-6
-4
-2
0
2
4
6
8
10
12
0 0.5 1 1.5 2 2.5
R&D capital intensity, 1991
Source: EU-KLEMS (TFP); EU-KLEMS, OECD and own calculations (R&D).
18/03/2010 17
Summary and implications
R&D capital stocks are important
EU lags behind US and Japan in business R&D — Need strong and sustained increase in R&D spending
Tremendous diversity in R&D capital stocks within the EU — No clear sign of convergence over time
Positive connection between R&D capital and TFP growth Include R&D capital in production function estimations
R&D expenditure and capital in Europe
Hubert StraussSenior Economist
European Investment Bank, [email protected]
COINVEST Academic ConferenceLisbon, 18 March 2010
