1. 1 1 Capitalisation of R&D in the national accounts Ann Lisbet Brathaug Head of National accounts Statistics Norway abr@ssb.no

2. 2 2008 SNA - recommendations Research is treated as capital formation except in any cases where it is clear that the activity does not entail any economic benefit for its owner in which case it is treated as intermediate consumption (para 6.230) “R&D should be recognized as part of capital formation. In order to achieve this, several issues have to be addressed. These include deriving measures of research and development, price indices and service lives. Specific guidelines, together with handbooks on methodology and practice, will provide a useful way of working towards solutions that give the appropriate level of confidence in the resulting measures”. (para 10.104)

3. 3 Stages of R&D capitalisation Discussions of method and data –Preparation of 2008 SNA leading up to the OECD handbook on intellectual capital Test compilations of R&D capital and consequences for national accounts aggregates –Norway has compiled test accounts –The results seem acceptable:  GDP level +1.2 per cent, negligible influence on GDP volume growth Full scale integration in the national accounts –Issues of consistency –Some aspects need attention

4. 4 Consistency issues Standard classifications should be used  In Norway units in the R&D survey relating to higher education and research institutes are not classified according to standard classifications of industry and sector  What is the situation in other countries? Consistency with business surveys of NACE 72 (Research and development)  No simple match of R&D survey and business survey for NACE 72  NACE 72 industry also produce services that do not fill the Frascati Manual definition of R&D Where should the new R&D data fit into our present SUT  In Norway, we hope that own account capital formation can be compiled from the R&D survey with some expert assistance  At present R&D data are not well identified in our SUT tables

5. 5 Challenges regarding data input Lack of price indicies of research and development services –In Norway we used input price index for NACE 72 –Do other countries have specialised producer price indices as recommended in the OECD handbook? Will producer price indices differ much form input price indices? Imports and exports of R&D – difficult to assess –In Norway the R&D survey have recently started to ask for both exports and imports of R&D services – so far difficult to assess the quality of the data and compare with exports and imports of services in general –Do other countries have data on exports and imports?

6. 6 Other difficult elements Service lives of R&D capital –Empirical data on service life are at least as good for R&D capital as for several other types of capital –The data shows wide variety of life lengths according to the specific types of R&D capital (OECD handbook, 2009, table 2.7)  It is not realistic, certainly not for Norway, to have a large number of R&D capital types  In our test calculations we took a pragmatic view and used a life length of 10 years –Will other countries be as pragmatic as Norway?

7. 7 Some data issues beyond the test compilation Quarterly data –Probably not realistic to have quarterly R&D surveys  In Norway, we have quarterly indicators for production in NACE 72  Some quarterly investment statistics could also cover GFCF in R&D capital –Have you decided how to implement R&D capitalisation in the quarterly national accounts? –Is R&D sensitive to cyclical changes and thus important to catch on a quarterly basis? Regional data –R&D surveys give production by county –Probably difficult to give regional capital formation in R&D capital based on the surveys –If one have to distribute GFCF in R&D according to other indicators of capital formation or production, will that disturb analyses of regional accounts?

8. 8 Concluding remarks All in all, in Norway, we see capitalisation of R&D as an improvement of the national accounts, even tough challenging The capitalisation has been well prepared by task forces New data sources have been brought to attention for the national accounts compilers In Norway, we experience that the R&D survey has been extended the last year to meet the new demand from the national accounts