BEA's 2006 research and development satellite account: preliminary estimates of R&D for 1959-2002 effect on GDP and other measures
THE Bureau of Economic Analysis has been working on a research and development (R&D) satellite account since 2004 to help economists gain a better understanding of R&D activity and its effect on economic growth. This article introduces the 2006 satellite account, which provides preliminary estimates of R&D investment and the impact of R&D investment on such measures as gross domestic product (GDP), investment, and saving.
The full 2006 satellite account, released in September and accessible via, modifies the accounting conventions used in the national income and product accounts (NIPAs) in order to explore the impact of "capitalizing" R&D--that is, treating R&D spending as an investment rather than as an expense. The new account does not affect the official measure of GDP. Rather, the satellite account provides a framework to explore new methodologies and provide regularly updated estimates of R&D in preparation for future incorporation into the input-output (I-O) accounts and the NIPAs.
The R&D satellite account was developed in partnership with the National Science Foundation (NSF), the Federal agency that is responsible for producing R&D-related statistics for the United States. NSF provided funding for the R&D satellite account project, and its staff reviewed account methodologies and results. Using R&D expenditure data from the NSF, BEA developed estimates of R&D investment, the R&D, and the resulting macroeconomic effects for 1959-2002. (1) Revised estimates are scheduled to be released in September 2007.
The 2006 account measures the direct effect of R&D investment on final demand only; it does not include spillover effects. Spillovers--the economic benefits of R&D available to entities that did not pay to create the R&D--are not included in the national accounts framework because the national accounts value assets at their market value. This treatment is consistent with the treatment of other types of spillovers in the national accounts.
The new account makes clear that treating R&D as an investment would have a substantial impact on GDP and other measures. Highlights from the new satellite account include the following:
* Current-dollar investment in R&D totaled $276.5 billion in 2002.
* Recognizing R&D as investment would increase the level of current-dollar GDP by an average 21/2 percent per year in 1959-2002 (chart 1). (2) * Businesses' investment in commercial and all other types of buildings would account for just over 2 percent
of real GDP growth in 1995-2002. * R&D investment and the income flows arising from accumulated R&D capital would account for about 4 1/2 percent of real GDP growth in 1959-2002. In 1995-2002, R&D investment would account for about 6 1/2 percent of growth.
* R&D investment would increase current-dollar gross private domestic investment in 2002 more than 11 percent, or $178 billion. The national saving rate in 2002 would be 16 percent, instead of 14 percent.
* Business investment in R&D as a percentage of GDP surpassed government investment as a percentage of GDP in 1981.
* Business investment accounted for just under 2 percent of current-dollar GDP in 2000, compared with just over 1 percent in 1960.
[GRAPHIC 1 OMITTED]
The release of the satellite account in September marks another step in BEA's efforts to adapt its measures of economic activity to structural changes in the economy (see the box "Previous NIPA Improvements Related to R&D"), particularly in the field of intangible assets. BEA plans several additional enhancements to the R&D satellite account in the near future: An improved treatment of the international aspects of R&D, improved measures of prices for R&D, and new industry-based estimates of R&D. Current plans, subject to available funding, call for the incorporation of R&D into the I-O accounts in 2012 and into the NIPAs in 2013.
The 2006 satellite account builds on the earlier work at BEA. (3) In 1994, BEA introduced the elements needed to translate R&D expenditures into investment, deflate investment, and develop R&D stock measures. In 2005, BEA went a step further and presented the general structure of the account along with rough estimates of the impact on GDP, gross domestic income (GDI), and national saving. The 2006 satellite account extends these previous efforts by exploring alternative scenarios that take into account the notable characteristics of R&D activity and by developing a more complete national accounts framework to estimate R&D activity.
In addition, BEA now recognizes the funder of R&D as the owner of R&D, that is, the entity that benefits from the activity; earlier versions focused on the performer of R&D. The change stems from the need to assign income flows to the economic sectors included in the national economic accounts. Assigning ownership from performer data is difficult because the performer is not necessarily the owner. Often, the original recipient of R&D funds may subcontract to others.
The full 2006 satellite account, released in September and accessible via
The R&D satellite account was developed in partnership with the National Science Foundation (NSF), the Federal agency that is responsible for producing R&D-related statistics for the United States. NSF provided funding for the R&D satellite account project, and its staff reviewed account methodologies and results. Using R&D expenditure data from the NSF, BEA developed estimates of R&D investment, the R&D, and the resulting macroeconomic effects for 1959-2002. (1) Revised estimates are scheduled to be released in September 2007.
The 2006 account measures the direct effect of R&D investment on final demand only; it does not include spillover effects. Spillovers--the economic benefits of R&D available to entities that did not pay to create the R&D--are not included in the national accounts framework because the national accounts value assets at their market value. This treatment is consistent with the treatment of other types of spillovers in the national accounts.
The new account makes clear that treating R&D as an investment would have a substantial impact on GDP and other measures. Highlights from the new satellite account include the following:
* Current-dollar investment in R&D totaled $276.5 billion in 2002.
* Recognizing R&D as investment would increase the level of current-dollar GDP by an average 21/2 percent per year in 1959-2002 (chart 1). (2) * Businesses' investment in commercial and all other types of buildings would account for just over 2 percent
of real GDP growth in 1995-2002. * R&D investment and the income flows arising from accumulated R&D capital would account for about 4 1/2 percent of real GDP growth in 1959-2002. In 1995-2002, R&D investment would account for about 6 1/2 percent of growth.
* R&D investment would increase current-dollar gross private domestic investment in 2002 more than 11 percent, or $178 billion. The national saving rate in 2002 would be 16 percent, instead of 14 percent.
* Business investment in R&D as a percentage of GDP surpassed government investment as a percentage of GDP in 1981.
* Business investment accounted for just under 2 percent of current-dollar GDP in 2000, compared with just over 1 percent in 1960.
[GRAPHIC 1 OMITTED]
The release of the satellite account in September marks another step in BEA's efforts to adapt its measures of economic activity to structural changes in the economy (see the box "Previous NIPA Improvements Related to R&D"), particularly in the field of intangible assets. BEA plans several additional enhancements to the R&D satellite account in the near future: An improved treatment of the international aspects of R&D, improved measures of prices for R&D, and new industry-based estimates of R&D. Current plans, subject to available funding, call for the incorporation of R&D into the I-O accounts in 2012 and into the NIPAs in 2013.
The 2006 satellite account builds on the earlier work at BEA. (3) In 1994, BEA introduced the elements needed to translate R&D expenditures into investment, deflate investment, and develop R&D stock measures. In 2005, BEA went a step further and presented the general structure of the account along with rough estimates of the impact on GDP, gross domestic income (GDI), and national saving. The 2006 satellite account extends these previous efforts by exploring alternative scenarios that take into account the notable characteristics of R&D activity and by developing a more complete national accounts framework to estimate R&D activity.
In addition, BEA now recognizes the funder of R&D as the owner of R&D, that is, the entity that benefits from the activity; earlier versions focused on the performer of R&D. The change stems from the need to assign income flows to the economic sectors included in the national economic accounts. Assigning ownership from performer data is difficult because the performer is not necessarily the owner. Often, the original recipient of R&D funds may subcontract to others.