Intellectual Property & the Economy J. Steven Landefeld, Director “Intangible Assets in Corporate Reporting and National Accounts” A Policy Framework for Knowledge-Based Capital, OECD/MIT December 3d, 2012,

A Broader Measure of Business Intangibles, Source: Corrado, Carol, Charles Hulten and Daniel Sichel. “Intangible Capital and Economic Growth, “ Working paper as part of the Finance and Economics Discussion Series, Divisions of Research and Statistics and Monetary Affairs, Federal Reserve Board, Washington, D.C. April 2006.

The Multi-Factor Productivity Residual  Preliminary results of BEA’s R & D Satellite Account indicate that between , R&D accounted for 5 percent of growth in real GDP.  Between , R & D’s contribution rose to 7 percent  If spillovers (residual unexplained portion of growth) from R&D are – as research suggests- at least as large as the direct returns, R & D may account for 1/6 of total factor productivity growth. Source for table: Corrado, Carol A. and Charles R. Hulten. Innovation Accounting. Paper prepared for the NBER-CRIW Conference, “Measuring Economic Progress and Economic Sustainability,” Cambridge, MA, August 6-8, 2012.

4 Results from BEA’s 2010 R&D Satellite Account:  Treating R&D as investment would have:  : Increased the growth rate of real GDP by.17 percentage point, a 5 percent share of growth  : Increased the growth rate of real GDP by.23 percentage point, a 7 percent share of growth  In comparison, private investment in commercial and other types of structures accounted for just over 2 percent of average real GDP growth  The contribution to average real GDP growth from treating R&D as investment is larger than the contribution from private investment in computers and peripheral equipment

5 Results from BEA’s 2010 R&D Satellite Account: ▪ If spillovers (residual unexplained portion of growth) from R&D are – as research suggests- at least as large as the direct returns, R&D may account for 1/6 of TFP growth ▪ Recognition of R&D as investment would raise private fixed investment by 11.3 percent in 2007 ▪ National saving rate rises by 2.3 percentage points from 14.2 percent to 16.5 percent in 2007

6 Results from BEA’s 2010 R&D Satellite Account:  Information, communication, and technology (ITC) and biotechnology-related industries account for two-thirds of the business sector’s R&D contribution to GDP growth between  Recognizing R&D as investment boosts the level of state GDP the most in New Mexico (9.2%) and in Maryland (6.2%), on average between  The value of U.S investments overseas increases by $171 billion or 0.9%, the value of foreign investments in the U.S. increases by $185 billion or 0.9%, for 2007

Shares of Private Business Investment in R&D by Industry, 1998 and

8 Nominal Private R&D Investment and Private Fixed Investment in Nonresidential Structures

Nominal R&D Investment as a Share of GDP, 1998 and

Share of Investment in Entertainment Originals by type, Theatrical Movies Long-Lived Television Books Music Misc. Total Investment in 2010: $69.7 billion

Entertainment Originals Relative to GDP (Nominal)

(Nominal Entertainment Investment)/ (Total Private Investment)

Capital Stock of Entertainment Relative to GDP (Nominal)

IP-Related Products and Services Leading the Economy ▪ ICT Services:  Growth  Prices  Productivity ▪ Digitally-enabled international trade:  Exports  Imports  Services balance 14

Percent Changes in Real GDP and ICT- Producing Industries, 2007:Q2-2011:Q4 15

Chain-Type Price Indexes for Real GDP and ICT-Producing Industries, 2007:Q1-2011:Q4 16

Percent Changes in Real Value Added and Labor Productivity, ICT-Producing Industries, Source: BEA & BLS

U.S. Exports of Digitally- Enabled Services 18

19 U.S. Exports of Digitally- Enabled Services ▪ The share of digitally-enabled services in total exports grew from 45 percent in 1998 to 61 percent in 2010 ▪ For , exports of business, professional, and technical services contributed most to the overall increase in digitally-enabled services exports  The categories with the fastest rates of growth were insurance services and financial services ▪ For , business, professional, and technical services contributed most to the overall increase  The largest increases were for management and consulting services and R&D and testing services

U.S. Imports of Digitally- Enabled Services 20

21 U.S. Imports of Digitally- Enabled Services ▪ The share of digitally-enabled services in total imports grew from 34 percent in 1998 to 56 percent in 2010  In 2010, there was a surplus on digitally-enabled trade in services of $116 billion out a total surplus in services of $146 billion. ▪ For , business, professional, and technical services and insurance contributed most to the overall increase in digitally-enabled services imports  The categories with the fastest rates of growth were insurance services and business, professional, and technical services

Real Value Added & Labor Productivity for Digital- Enabled Service Industries,

BEA data priorities ▪ Incorporation of R & D in National Income and Product Accounts (GDP) ▪ Expanded measures of other intangibles, including movies and entertainment, social science R & D, human capital, business models and firm specific R & D ▪ Continued incorporation of improved measures of prices, output, productivity, and investment returns for IT /IP products and services. 23