# Presentation: 082775

## Experimental Industry Estimates in BEA’s R&D Satellite Account 

**Carol A. Robbins**
**Industry Accounts Data Users Meeting**
**October 26, 2007**

## Purpose of R&D Satellite Account

- Treat R&D as investment in an experimental framework
- Part of broader BEA program to improve measures of intangibles in national accounts
- The importance of updating economic measurements given advances in the knowledge economy
- The challenges in measuring intangibles
- Both conceptual and data-related

## The Importance of Updating Economic Measurements – Past Efforts

- _	_
- Note: Data through the final estimate of 2007Q2

## Why Recognize R&D as Investment? 

- Economic theory:
- Expenditures on tangible and intangible products that reduce current consumption in order to increase future output should be treated as investment
- National Accounting Consistency
- Most R&D activities have the qualities of a produced asset
- Improved measurement of R&D important for:
- Identifying sources of economic growth
- Monetary, tax, regulatory and other policies through improving the accuracy of GDP estimates
- Why R&D at this point?
- Good data on R&D expenditures collected by the National Science Foundation for over 50 years

## Where Does R&D currently show up in the components of GDP? 

- Personal consumption expenditures
- Gross private domestic investment
- Fixed investment
- Nonresidential
- Structures
- Equipment and software
-  Residential
- Change in private inventories
- Government consumption expenditures and gross investment
- Federal
- State and local
- Net exports of goods and services
- Exports
- Imports

## Changes to National Accounts

## New in the 2007 Release

- Satellite account extended two years: 1959-2004.
- Building on 2006 SA, includes several enhancements:
- Improved measures of prices for R&D.
- Adjusts R&D investment for international trade in R&D services.
- Adjusts for the double-count with previously capitalized R&D in software investment.
- Includes a preliminary estimate of R&D investment in social sciences based on Economic Census data.

## New in the 2007 Release (cont’d)

- First look at industry-level estimates of R&D investment (1987-2004).
- Impact of R&D as investment on gross output and value added for R&D-intensive industries
- First look how the international and regional accounts would implement the capitalization of R&D.

## Industry Detail : R&D Intensive Industries

| Manufacturing Detail: 
  Chemical excluding Pharmaceutical |
| --- |
|   Pharmaceutical and medicine |
|   Computer & electronic products |
|   Communications equipment |
|   Semiconductors |
|   Navigational/measuring/medical/control instruments |
|   Motor vehicles, trailers and parts |
|   Aerospace and other transportation equipment
Services Detail:  |
|   Software publishing  |
|   Computer systems design and related services  |
|   Scientific R&D services  |

## Industry Impacts 

- Impacts industry gross output and value added.
- Business investment in R&D by industry split:
- Own account
- Purchased R&D
- Purchases of nonscientific R&D added.

## Trends in top four R&D producing industries

**Trends in top four R&D producing industries**

- [% of Private Business Investment in R&D]

- Motor Vehicles 11.4%

- Motor Vehicles 8.3%

- Aerospace 11.0%

- Semiconductors
- & electric components, 9.4%

- Pharmaceuticals 8.0%

- Semiconductors
- & electric components
- 8.8%

- Software publishers 8.1%

- Pharmaceuticals 20.0%

**1987**

**2004**

## Business R&D Investment's Contribution to Real GDP Growth, 1987 to 1995 and 1995 to 2004

## Company to Establishment AdjustmentWhere within pharmaceutical and medicine manufacturing  companies is R&D performed? 

**What we know: company employment by type of establishment**

## Example: Pharmaceutical and Medicine Manufacturing: 2004 $billions

|  | Unadjusted | Adjustment | Adjusted |
| --- | --- | --- | --- |
| Gross output | 155.4 |  |  |
|   Plus: Own account R&D  |  | 10.9 |  |
|   Less: own account R&D software double-count |  | (0.1) |  |
| Gross Output |  |  | 166.2 |
| Intermediate Inputs | 83.7 |  |  |
|   Less: Purchased R&D |  | 29.7 |  |
| Intermediate Inputs |  |  | 54.0 |
| Value Added | 71.7 |  | 112.2 |
| Addendum: R&D investment |  | 40.6 |  |

## Upcoming Conceptual and Data Challenges for the Industry Estimates

- Company to Establishment Conversion
- R&D investment in humanities, social sciences, and other non-science areas
- Improving inter-industry and inter-sector sales and purchases
- Incorporate into the Benchmark Framework