Agenda item 2b
Invited paper 13
JOINT UNECE/EUROSTAT/OECD MEETING
ON NATIONAL ACCOUNTS,
GENEVA 22-24 APRIL
DERIVING ESTIMATES OF GROSS FIXED CAPITAL
FORMATION OF RESEARCH AND DEVELOPMENT
USING R&D SURVEY DATA
CHARLES ASPDEN
OECD
Introduction
• Recognition of R&D as a fixed asset is one of
the major changes in the new SNA
• OECD and EU task forces created to promote
its implementation quickly, efficiently, and
accurately , while achieving international
comparability
• New OECD handbook to provide guidance on
compiling estimates of intellectual property
products (IPP)
Outline of presentation
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Details of the SNA recommendation
Implementation process
Quantitative impact
Definition of R&D GFCF and its practical
implementation
Spillovers
Using FM R&D survey data
Additional data requirements
Major outstanding issues
Recommendations
• Research and development should be treated as gross
fixed capital formation in the SNA. It should be defined
as in the Frascati Manual, namely “research and
experimental development comprises creative work
undertaken on a systematic basis in order to increase
the stock of knowledge, including the knowledge of
man, culture and society and use of this stock of
knowledge to devise new applications.” This definition
should not be interpreted as including human capital
as capital formation within the SNA.
• (OECD Frascati Manual 2002: Proposed Standard
Practice for Surveys on Research and Experimental
Development)
Recommendations
• By convention, since much R&D is carried out on
own account, it should be valued at cost. In
practice, the information collected in accordance
with the Frascati Manual will provide estimates
of R&D expenditure; discussion is ongoing to
make adjustments to this Manual to meet the
needs of the SNA more closely. It is recognised
that a detailed guide to implementation will be
desirable to assist implementation of this
recommendation.
Recommendations
• All R&D expenditure that is sold or is expected to
bring a benefit in the future to its owner
(including for the provision of public services in
the case of R&D undertaken by government) is
included within the asset boundary. Only R&D
that brings no economic benefit discernable at
the time of its completion is excluded.
• With the inclusion of R&D in the asset boundary,
patented entities will no longer be separately
identified as such in the system, but they will be
subsumed into R&D assets.
However…..
• While there is strong support by countries for adopting
these recommendations in the SNA, there is also
considerable concern that it is premature to do so
because of technical difficulties that have yet to be
overcome. In conclusion, R&D expenditure should be
recognized, in principle, as part of capital formation.
However, recognising the difficulties to be overcome
before this objective can be reached, satellite accounts
will provide a useful way of working towards solutions
that give the appropriate level of confidence in the
resulting measures and practical guidance on
implementation will help to ensure international
comparability.
R&D satellite accounts
• Countries such as Israel, Denmark, US,
Netherlands and Australia have already
compiled experimental estimates
• US BEA is taking a step-by-step approach and
numerous papers are available on its website
• From 2009 EU countries expected to compile
satellite accounts
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Figure 1. Gross Domestic Expenditure on R&D as a percentage of GDP, 20061
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Introduction of R&D GFCF in core
accounts
• Australia 2009
• US and Canada 2012
• Europe no earlier than 2014
Scope of R&D GFCF
Definition of an asset
• 3.30 An asset is a store of value representing a benefit or series of
benefits accruing to the economic owner by holding or using the
entity over a period of time. It is a means of transferring value from
one accounting period to another.
• Implications
– the value of an R&D asset is determined by the benefits accruing to its
economic owner. This implies that any benefits accruing to other units
are not included in the value of the asset.
– economic owner and not legal owner – sometimes different because
of licence agreements.
– assets are a means of transferring value from one accounting period to
another, i.e. expected to produce benefits for more than a year.
Spillovers
• R&D output – knowledge – spreads from the owner to
other units
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Publication of research papers
Patent documents
Observation of owner’s activity
Made freely available
• But it is only an asset for its owner
• Even if R&D output is made freely available it is still an
asset if it is expected to provide future economic
benefits for its owner.
– Medical research undertaken by government and used in
government hospitals
Identifying those R&D expenditures
that should be recorded as GFCF
• R&D undertaken with no expectation of
economic benefits to the owner, or an
affiliated unit, should be recorded as
intermediate consumption, not GFCF
• Probably nearly all R&D acquired by market
producers should be recorded as GFCF.
• But probably not all R&D acquired by nonmarket producers should be recorded as GFCF.
• OECD task force is investigating this issue
Compiling estimates of R&D GFCF
• GFCF mostly conducted on own account. GFCF
estimated by summing costs.
• R&D surveys conducted in accordance with the
Frascati Manual (FM) to be the principal data
source • FM and SNA have same definition of R&D
• FM surveys conducted over many years for many
countries
• FM surveys collect detailed expenditures on R&D
by performers, with similar, but not always the
same, definitions as the SNA
FM data
• Intramural expenditures: all expenditures for R&D
performed in a unit, whatever the source of funds
• Current costs
– Labour (same as SNA)
– Other (similar to intermediate consumption in SNA, but no
allowance for changes in inventories)
• Capital costs
– Land and buildings (combined)
– Instruments and equipment (including embodied
software)
– Computer software (purchases plus licence fees)
FM data
• FM collects sources of funds by sector, but
does not discriminate between transfers and
purchases
• FM also collects “extramural” expenditures:
purchases of R&D from other units and grants
to other units, but not separately identified.
Outline of bridge tables –
From FM to SNA GFCF
• Basic approach
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Expenditures on inputs by performers from FM surveys
Plus imports
Equals total supply of R&D,
Use commodity flow approach to determine GFCF
• To accomplish this requires three kinds of bridges between the FM
and SNA data:
– Between FM sectors and SNA sectors
– Between FM’s expenditures on R&D and SNA output
– Between FM’s classifications of expenditures and funding, and the
SNA supply and use tables.
• Annex 3 of the FM describes the differences and similarities in the
SNA and FM treatments of R&D. This includes a discussion of the
differences in sectoring and the differences between SNA output
and total intramural R&D.
•Table 1: Linking FM and SNA Sectors
OECD Frascati Manual
SNA
Business enterprise sector
Non-financial corporations
Financial corporations
Government sector
General government
Private non-profit sector
NPISH
Households
Higher education sector
Corporations and quasi corporations
General government
NPISH
Abroad
Rest of world
Bridge tables –
FM’s expenditures on R&D and SNA output
• Starting with intramural expenditures
• Add other taxes less subsidies not already
included
• Add extramural expenditures (excluding
grants)
• Add imputation for free labour provided by
postgraduate students
• Replace expenditures on land and buildings
with the capital services they provide
Bridge tables –
Imports and Exports
• FM funding data can provide estimates of
imports by performers and the exports of
performers
• Need to be supplemented and reconciled
using
– Trade in services data
– Foreign direct investment data
Bridge tables –
Deriving GFCF
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Output + imports =
Intermediate consumption plus
Exports plus
Changes in inventories (only R&D produced
for sale) plus
• GFCF
Additional data requirements from FM
surveys
• Extramural expenditures and funding data
need to distinguish between:
– Purchases and transfers
– Resident and non-residents
• Intramural expenditures require
– Data on other taxes and subsidies
– More detailed breakdown of capital expenditures
to support the PIM
Outstanding issues pursued by OECD
Task Force
• Determining practical means for identifying which
R&D expenditures should be recorded as GFCF
• Other boundary issues, such as avoiding double
counting with other fixed assets
• Service lives for R&D assets (for use in the PIM)
• Price indices
• Measuring international trade in R&D, including
between affiliated units