Measuring R&D Expenditure

1. Measuring R&D Expenditure ECO - UIS Regional Workshop on Science, Technology and Innovation (STI) Indicators Tehran, Iran 8-10 December 2013 Rohan Pathirage, UIS

2. R&D expenditure - general issues • Basic measure: “intramural expenditures” • All expenditures for R&D performed within a statistical unit or sector of the economy • Another measure: “extramural expenditures” • covers payments for R&D performed outside the statistical unit or sector of the economy • Current costs and capital expenditures are measured

3. R&D expenditure: current costs (1) • Current costs are composed of labour costs and other current costs: • labour costs of R&D personnel • annual wages and salaries • all associated costs or fringe benefits • Share of R&D in total labour costs: could be estimated using R&D coefficients derived from time-use studies; (could be applied at an appropriate level; individual, institute, department, university).

4. R&D expenditure: current costs (2) • other current costs • materials, supplies and equipment (incl. water, gas and electricity); • books, journals, reference materials, subscriptions; • materials for laboratories; • costs for on-site consultants; • administrative and other overhead costs; • costs for indirect services; • labour costs of non-R&D personnel. • Current costs may be prorated if necessary to allow for non-R&D activities within the same statistical unit.

5. R&D expenditure: capital expenditure (1) • Capital expenditures: annual gross expenditures on fixed assets used in the R&D programmes of statistical units • land and buildings • instruments and equipment • computer software

6. R&D expenditure: capital expenditure (2): Pro rata expenditure • Share of R&D in ‘Capital expenditure’ and ‘Other current costs’: could be estimated (by the institutes) on the basis of intended use • If intended use is not feasible as a criterion, the same distribution coefficients as for labour costs may be used • Eg: consider a new laboratory that will be used for R&D (included), testing (excluded) and quality control (excluded). If the intended use of this new laboratory for R&D purposes maybe 40% of the total usage (ie. the other 60% for other activities), only 40% of the total construction cost of the building should be considered as the relevant R&D expenditure.

7. R&D expenditure: capital expenditure (3) • Expenditure should be reported in full for the period when it took place • All depreciation provisions, whether real or imputed, should be excluded • Practical reasons • Government sector – no depreciation provisions; comparisons with other sectors • If depreciation is included in current costs, the addition of capital expenditures would result in double counting • Different accounting systems

8. R&D expenditure – general issues • R&D involves significant transfers of resources among units, organisations and sectors • In particular between government and other performers • Important information for science policy • R&D expenditure = resources actually spent on R&D activities, rather than only budgeted. • For sound data  rely on responses of R&D performers rather than funding agencies

9. R&D expenditure – general issues (cont) • Issues when using secondary data from national budget • New sources of funds emerging (NGOs, Foreign entities, BE) • Discrepancy between voted and allocated budget • Budgetary commitments are not followed up • Mixing of budgetary records and annual reports from performing units • Definition of S&T / R&D budgets • Identifying R&D components in the national budget • State-owned enterprises, university-owned companies and national scientific academies • Public vs. Private universities • Fiscal year vs. calendar year • Information systems in government and higher education inadequate for statistics

10. Measuring R&D expenditure • A statistical unit may have intramural and extramural expenditures on R&D • The full procedure for measuring expenditures: • Identify intramural expenditure on R&D performed by each statistical unit • Identify the sources of funds as reported by the performer • Aggregate the data by sectors of performance and sources of funds to derive significant national totals • Optional: Identify the extramural R&D expenditures of each statistical unit

11. Sources of R&D expenditure Criteria for identifying flows of R&D funds • There must be a direct transfer of resources • The transfer must be both intended and used for the performance of R&D

12. Public general university funds (GUF) Universities draw on three types of funds to finance their R&D • R&D contracts and earmarked grants from government and other outside sources credited to their original source • Universities’ “own funds” • Income from endowments, shareholdings and property • fees from individual students • subscriptions to journals • sale of serum or agricultural produce • General grant from the ministry of education (or corresponding authorities) in support of their overall research/teaching activities  the R&D content of these public general university funds should be credited to government as a source of funds.

13. GERD: Sector of performance and source of funds Sources Abroad: 200 (10%) Abroad: 200 (10%) PNP: 250 (13%) PNP: 250 (13%) HE: 200 (10%) HE: 200 (10%) GOV: 950 (48%) GOV: 950 (48%) BE: 400 (20%) BE: 400 (20%) 30 50 100 20 50 100 50 50 30 20 100 50 50 300 500 100 50 50 100 200 PNP: 240 (12%) Performers HE: 530 (27%) GOV: 800 (40%) BE: 430 (22%) TOTAL GERD: 2000 GERD: Gross domestic expenditure on R&D

14. GERD - matrix of performing and funding sectors

15. National totals • Gross domestic expenditure on R&D (GERD): total intramural expenditure on R&D performed on the national territory during a given period. • includes R&D performed within a country (which financed by national institutions and also funded from abroad) but excludes payments for R&D performed abroad. • constructed by adding together the intramural expenditures of the four performing sectors. • Gross national expenditure on R&D (GNERD): total expenditure on R&D financed by a country’s institutions during a given period. • includes R&D performed abroad but financed by national institutions or residents; it excludes R&D performed within a country but funded from abroad. • constructed by adding the domestically financed intramural expenditures of each performing sector and the R&D performed abroad but financed by domestic funding sectors

16. Breakdowns of R&D expenditure • Sector of performance • Source of funds • Type of activity • Type of costs (current vs. capital cost) • Fields of science • Socio-economic objective

17. Summary • R&D Expenditure: Definitions • Intramural expenditures; Extramural expenditures; Current costs; Capital expenditures • Measurement of R&D expenditure • Procedure for measuring expenditures; flows of R&D funds; GERD Matrix; sector of performance; sources of funds

18. Thank you! http://www.uis.unesco.org r.pathirage@unesco.org