Discussion of Francisco Moris’ U.S. International Trade in R&D-Related Services and a Transactions-Based Profile of Business R&D’Wolfgang Keller, University of Colorado and NBER

Overview

• Shows recent trends in US trade in research, development, and testing (RDT) services

• Develops a new methodology, transactions-based R&D accounting, for tracking international R&D that emphasizes ‘use’ of R&D results

• Applies the new framework to 2003 US data from NSF and BEA

Why is this important?

• Because the US trade surplus in RDT services is primarily due to exports by foreign-owned multinational affiliates ?

• New indicators on how new technology is used and diffused internationally for current levels of integration

• R&D creates new technology, thereby raising productivity – and that is the critical determinant of per-capita income

Sources of Income Differences

Production function: Y = A*F(K,H,L)

Two ways of raising output:

1.Higher effort and investment– More hours worked: ΔL– More investment: ΔK, ΔH

2.Higher efficiency– More output for given L, K, and H: ΔA

Output Differences: the Breakdown•Typical example: U.S. output per worker in the year 1985 is 35 times as large as that of Niger

Output per Worker difference

Capital difference

1.5x

Human capital difference

3.1x

Productivity difference

7.7=

TotalSource: Hall and Jones 1999

35

But: not much is known yet about the ‘A’ factor• Typically, what we know is

– Not based on data, but on constructed or otherwise estimated data

– Only correlations of observables with the constructed ‘A’ factor

• Some indications that ‘A’ is affected by technology activity both at home and abroad

• There is a great need to measure and quantify

technology creation and linkages

Research, Development, and Testing Services

US Private Services Exports 2001

Travel27%

Passenger fares6%

Royalties and license fees14%

Other transportation10%

Other business, professional, and technical

services13%

Management and consulting services

1%

Research and development and testing services

2%

Computer and information services

2%

Other services6%

Film and television tape rentals

3%

Telecommunications2%

Insurance services1%

Financial services7%

Education4%

Operational leasing2%

Total: $ 273 billion

RDT: $ 6.7 billionAffiliated: $ 5.7 billionUnaffiliated: $ 1.0 billion

US: trade surplus in Business, Professional , and Technical Services (BPT) and RDT Services

US is net exporter of RDT largely through affiliated trade…

Total Unaffiliated Affiliated

Millions of current $ US

And that comes largely from foreign-owned affiliates to their multinational parents

US RDT trade surplus through exports by foreign-owned affiliates –does this matter?• Quantitatively, how large are these net

technology transfers from the US to other countries? – Not that large: 1.5% of US BERD in 2003

• Are there policy implications for the US?• Technology sourcing, ‘Listening-post FDI’

– van Reenen et al., forthcoming American Economic Review

• International technology linkages go both ways. FDI coming into the US has a major positive effect on US firm productivity– Keller and Yeaple (2005)

Who is the ultimate beneficiary of US R&D?• Current R&D expenditure statistics

focus on two dimensions (Frascati Manual)– R&D Performer– R&D Funder

• System of National Accounts - based statistics would consider the R&D ‘user’

• If market transactions on R&D services are observed, we know their value, not only the costs of R&D

Relation to new US R&D Satellite Accounts

Frascati Manual (FM)

SNA

R&D expenditures

-Exports of RDT-Imports of RDT

Output

Exports and imports of R&D output

Capital formation

See Robbins (2006)

The three faces of R&D

Funding Use/ExchangeProduction

R&D

Table 4: A New Transactions View of R&D

Transactions 2 to 5 are market-based

R&D in the closed economy

Gross Expend. R&D used

Note: [2] = [4], [3] = [5]

Trade in R&D services in open economy•R&D service exports of one country are the R&D service imports of another: [2] + [3] = [4’] + [5’] (assumes no intra-country R&D trade)

Application to 2003 US Business R&D

[1]+[6]+[2]+[3]

[1]+[6]+[4]+[5]

Units: Billion current $ US

Initial questions: domestic R&D trade• In which industries is there a lot of

R&D service trade? • What are the characteristics of

firms that buy and sell R&D services domestically?

• How large are R&D purchases and sales, relative to own-account R&D in the closed economy?

International R&D service trade

• What are the characteristics of firms that export or import R&D services? With which other countries?

• Does R&D service trade decline with distance, domestically as well as internationally, like most other trade does?

Technology diffusion: market-based and non-market based

R&D Spillovers, R&D Trade, and Technology Licensing: US Exports in 2001 (billion $)

40.704%6.75

1%

1001.5495%

R&D Spillovers provided by USR&D&T Services Exports by USReceipts of Royalties and License Fees by US

Why look at Multinationals: FDI and the Internalization Question

• Internalization : The hierarchical structure between MNE parent and affiliate overcomes market failures –internalize externalities--in the market for technological knowledge

-> that is a motive for FDI, versus technology sale or licensing

Studying technology diffusion inside and outside the MNE

• Comparing RDT service trade between– affiliated and– unaffiliated parties

• Are there systematic differences in these patterns?

• If so, does transfer pricing play a role?• To the extent that it does not, what

accounts for the systematic differences?

Conclusion

• The paper provides the methodological basis for new research on technology linkages between countries– Will improve understanding of international

technology diffusion & income differences

• Current efforts should also put emphasis on royalty and licensing payments

• And: how can a more informed analysis of market-based linkages shed new light also on spillover relations?