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Comments on R&D Satellite Account: Strengths and proposals for improvement

Comments on R&D Satellite Account: Strengths and proposals for improvement

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Comments on R&D Satellite Account: Strengths and proposals for improvement

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  1. Comments on R&D Satellite Account: Strengths and proposals for improvement Bureau of Economic Analysis Conference Measurement Issues and the R&D Satellite Account Methodology December 13, 2006 Carol Corrado, Federal Reserve Board

  2. Focus of Remarks 2006/7 R&D Satellite Account 2012 NIPAs Future R&D (R&D treated as Satellite Account Investment) (eg., RoRs, spillovers)

  3. Conceptual issues • Ownership and valuation issues. • Sectoral (vs. industry) issues. • Defining the scope of R&D investment. • Currently is NSF’s surveyed R&D. • Should other investments in new product/process development also be included? YES! (but subject for another day)

  4. The ownership of R&D investment • Funder vs. Performer? Tricky….But I think BEA has this right. Implications: • Treat publicly funded R&D like a bridge or other infrastructure. • Treat private R&D like a machine-tool or software. • Public/ private R&D have a different “character” (basic vs. applied or up vs. down stream) • Public R&D is long-lived/valuable. • Within NIPAs => Depreciation rates for private vs public R&D should be different (eg. via “character”).

  5. Public knowledge stock More important than size?

  6. Measurement of R&D investment (current dollar value) • BEA is using cost. • The BEA document states (p23), "...there is currently no standard measure of R&D output..." in defense of using costs. • Measuring R&D investment as the cost of R&D is consistent with the NIPAs. • How would you measure machine-tool investment? By the cost of the machine-tool. …. software investment, etc. • This approach doesn't depend upon whether the firm produces the R&D itself or purchases it on the market. • BEA has chosen no gestation lag for R&D.

  7. Price indexes for R&D • Economic theory suggests firms will invest in an asset up to the point that cost = PDV of the stream of income expected to be produced by the asset. • Suggests an overall business product price is a reasonable proxy price index for private R&D. • As the marketplace for intellectual property develops, prices of existing IP assets will be able to be recorded (and perhaps used to infer prices for “new” private R&D). • To maintain consistency with the treatment of bridges, an input-cost approach can be used to deflate publicly R&D.

  8. Issues needing further study • NSF time series is affected by its exclusion of R&D by small firms (unincorporated business). • Potentially a big deal. • Internationalization of R&D. • US R&D by foreign-owned MNCs is US investment (and part of the US productive capital stock). • Vice versa for US MNC R&D spending abroad—potentially large to the extent “D” locates near market. • Suggests consolidated I&P account for MNC R&D would be of considerable interest –what impact on saving? • FOFAs and balance sheets vs. production accounts.

  9. VC Investments as proxy…

  10. Time-series/Quarterly estimates • Time-series integrity of annual series • Documentation on treatment of breaks in NSF data, eg. 1994 • Dispose the so-called R&D/software overlap • NSF instructs respondents to exclude own-account software. • But, BEA may be counting software R&D as own-account software. • Historical quarterly estimates • How well does (VC-adjusted) NSF spending relate to employment and wages of scientists and engineers? • Going forward: Need appropriate instrument for NIPAs • Redesign of NSF survey underway (included a lot of outreach—great effort!) • Quarterly indicator survey (Census)? Does BEA have opinion?

  11. Summary • Keep decisions consistent with NIPAs (or change NIPAs) • Measure R&D investment as cost. • Use price index for business product (or product of 5-10 basic technology groups) to deflate private R&D. • Differentiate R&D depreciation by character to highlight key distinction between private and public R&D. • Need to consider: • Role of venture capital (corporate/noncorporate) • Integration of BEA MNC data (domestic/r-o-w) • Watch the IP marketplace as it develops (price data) • Continue to work with the NSF and Census so that survey addresses the needs of the NIPAs. • Why wait until 2012?