Barbara M. Fraumeni Muskie School of Public Service, University of Southern Maine & the National Bureau of Economic Research Aspects of Measuring R&D Capital Services and the Production Account Washington, DC December 13, 2006 R&D Productivity Accounts

Muskie School of Public Service Ph.D. Program in Public Policy Not the Usual GDP Contribution  Productivity accounts are a different way of looking at contribution to GDP  Require capital services and a full set of productivity (production) accounts NOT EASY

Muskie School of Public Service Ph.D. Program in Public Policy Two Contributions to GDP Growth  Contribution of R&D investment  Contribution of R&D capital input

Muskie School of Public Service Ph.D. Program in Public Policy Part of a BEA/BLS Project?  BLS produces productivity accounts with capital services  NIPA income (and R&D) accounts don’t have all the needed pieces yet  Sveikhauskas work is not fully integrated into BLS productivity accounts

Muskie School of Public Service Ph.D. Program in Public Policy Issues  Difficulty of assembling productivity accounts components  Determining rates of return  R&D impacting on inputs or productivity change, or both?

Muskie School of Public Service Ph.D. Program in Public Policy Assembling Productivity Accounts Components  Need capital services and labor services  Nominal and constant dollars  Stocks and employee counts are inadequate proxies WORK WITH BLS

Muskie School of Public Service Ph.D. Program in Public Policy Assembling Productivity Accounts Components (cont.)  Need to do it for all assets, not just R&D  Why?  Determining the amount of total capital compensation (and labor compensation)  Mixed income is a problem  Do the results make sense across assets (and industries)?  More tax complications for other assets WORK WITH BLS

Muskie School of Public Service Ph.D. Program in Public Policy Net Rates of Return Equal Across All Assets  Endogenous vs. exogenous?  Overall  R&D, unknown total  Typical endogenous ROR calculation  Estimates corporate vs. noncorporate capital compensation  May assume self-employed wage rates  Needs to split mixed income  Suggests need for an asset approach for R&D

Muskie School of Public Service Ph.D. Program in Public Policy Net Rates of Return NOT Equal Across All Assets  Passing the “smell” test  Perfect mobility  Extra returns competed away instantaneously  Gross return = net return plus depreciation  Identifying (private) net return vs. depreciation  Netting out spillovers  Need to assume one or the other

Muskie School of Public Service Ph.D. Program in Public Policy R&D’s Impact  BLS footnote on R&D  R&D may impact on inputs  R&D may impact on productivity  Or some of both  Difficult for BEA to sidestep this issue in a productivity account

Muskie School of Public Service Ph.D. Program in Public Policy Conclusion  Productivity accounts including R&D should be constructed  R&D is more complicated than most other included assets, start simple, complicate later  Do this as part of a joint BEA/BLS project to create productivity accounts at the aggregate and sectoral levels

Muskie School of Public Service Ph.D. Program in Public Policy Missing Discussions  What is appropriate for a satellite account but not for GDP accounts  Freely available R&D  Software  Imports & exports and other international considerations  Status of SNA revision proposals