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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 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. www.bea.gov 11 Issues to be addressed  Measuring R&D  Measuring R&D investment returns  Measuring R&D capital services and the production account

12. www.bea.gov 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. www.bea.gov 13 Measuring R&D Investment Returns  Rate of return across asset types  Rate of return to government and nonprofit R&D  Depreciation

14. www.bea.gov 14 Measuring R&D Capital Services and 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. www.bea.gov 15 Other issues?  Are there other issues that have not been raised that BEA should consider?