The BEA-NSF R&D Satellite Accounts, 2007 Results and

Current Challenges

Carol E. MoylanBureau of Economic Analysis

OECD Working Party on National AccountsOctober4, 2007

www.bea.gov 2

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 broader BEA program to improve measures of intangibles in national accounts

Why R&D? Good data on R&D expenditures collected by

the National Science Foundation for over 50 years

Numerous studies rates of return Greater professional agreement on its

capitalization

www.bea.gov 3

Main Topics

What is new in the 2007 estimates. Preliminary Results from the

September 2007 release of the R&D Satellite Account.

Regional and international issues for measuring R&D.

Looking ahead.

www.bea.gov 4

2007 Enhancements Satellite account extended two years: 1959-2004. R&D adjusted for both unaffiliated and affiliated

trade. Purchases of business R&D adjusted from cost

basis to imputed purchase price. Adjusted for R&D in software. First look at industry-level estimates of R&D

investment (1987-2004). Improved measures of prices and depreciation for

R&D. R&D adjusted rates of return to broad industry

groups. First look at how the international and regional

accounts would implement the capitalization of R&D.

www.bea.gov 5

R&D Investment as a Percent of Adjusted GDP

1959-2004

2

2.2

2.4

2.6

2.8

3

3.2

1959 1964 1969 1974 1979 1984 1989 1994 1999 2004

Percent

2007 GDP Adjusted for software double-count 2007 GDP with software double-counted 2006 Vintage

www.bea.gov 6

GDP When R&D Treated as Investment Comparison Between

2006 and 2007 Vintages

www.bea.gov 7

Contributions to Real GDP Growth

www.bea.gov 8

Impact on the Growth and the Industry Share of Growth in Private Industry Value Added When R&D is Treated as

Investment (1995-2004)

www.bea.gov 9

Business R&D's contribution to the Growth Rate of Real GDP

Average Contribution to GDP Growth, 1995-2004

www.bea.gov 10

Rates of Return for Chemical and Computer Industry Groups

Adjusted and Unadjusted for R&D Investment

-15

-10

-5

0

5

10

15

20

25

30

35

1959 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001 2004

Percent

Chemical Industry rate of return,unadjusted

Chemical Industry rate of return,adjusted for R&D, constant rate ofdepreciation

Chemical Industry rate of return,adjusted for R&D, acceleratingdepreciation

Computer Industry rate of return,unadjusted

Computer Industry rate of return,adjusted for R&D, constant rate ofdepreciation

Computer Industry rate of return,adjusted for R&D, acceleratingdepreciation

www.bea.gov 11

Regional & International Issues

Location of R&D activity: Performing states vs. funding states

Data challenges How to distinguish transfers of

ownership of R&D capital from limited rentals of rights to use R&D capital

How to treat the sharing of R&D capital among different parts of a multinational corporation

www.bea.gov 12

Looking Ahead

Address the asset boundary/freely available R&D issue

Greater industry detail for service sector R&D

Depreciation rates for government R&D? Slower depreciation for basic?

Data quality issues Better measures of capital inputs Company to establishment data Quarterly indicators