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

1. The U.S.R&D Satellite Account:Measurement Issues and R&D Satellite Account Methodology Sumiye Okubo R&D Conference December 13, 2006

2. 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

3. 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

4. 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

5. 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

6. 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

7. 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

8. 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.

9. 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

10. 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

11. Issues to be addressed • Measuring R&D • Measuring R&D investment returns • Measuring R&D capital services and the production account

12. 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

13. Measuring R&D Investment Returns • Rate of return across asset types • Rate of return to government and nonprofit R&D • Depreciation

14. 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

15. Other issues? • Are there other issues that have not been raised that BEA should consider?