1. Item 14a: Research and Development
ESTP course on National Accounts ESA 2010
Luxembourg, 30 May – 03 June Eurostat

2. Research and Development at the heart of a modern economy
R&D expenditure represents one of the major drivers of economic growth in a knowledge-based economy
Investing 3% of GDP in R&D is one of the headline targets in the Europe 2020 strategy for the smart, sustainable and inclusive growth
To reflect the importance of the R&D in the modern economy a new treatment of R&D expenditure in the ESA 2010 has been decided: capitalisation of R&D

3. Definition of Research and Development
Research and experimental development (R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge - including knowledge of humankind, culture and society - and to devise new applications of available knowledge (Frascati Manual, 2015 edition, par 2.5)

4. Bigger picture In ESA 95 already was capitalised: In ESA 2010:
Computer software (AN.11731)
Databases (AN.11732)
Entertainment, literary or artistic originals (AN.1174)
In ESA 2010:
Research & development recognised as assets (AN.1171)
In future ESA:
Other intellectual property products?

5. Distinguishing R&D from other activities
Despite the precise definition of R&D, distinguishing R&D from other activities such as e.g. education, training or market research may pose problems
This problem already existed under ESA 95, but whereas a confusion between two activities (e.g. research and training) does not have any impact on GDP under ESA 95, it has under ESA 2010 since R&D expenditure is considered as an investment, i.e. a GDP component

6. Estimating output
ESA 2010 (Annex 7.1): The value is determined in terms of the economic benefits expected in the future. Unless the value can be reasonably estimated it is, by convention, valued as the sum of the costs

7. Capitalisation of market R&D ESA 95

8. Capitalisation of market R&D ESA 2010

9. Assets of intellectual property
“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.”
R&D services generate assets of intellectual property
A consumption of fixed capital must be estimated for these assets

10. Capitalisation of non-market R&D ESA 95

11. Capitalisation of non-market R&D ESA 2010

12. Consequences of the new treatment of R&D for National Accounts (1)
Consequences of the change for market producers:
R&D services are reclassified from intermediate consumption to gross fixed capital formation - this increases value added and GDP
Value of the output for own final use includes a mark-up for profit - this increases value added and GDP

13. Consequences of the new treatment of R&D for National Accounts (2)
Consequences of the change for non-market producers (General Government, NPISH)
new consumption of fixed capital (taking into account depreciation of R&D assets) is included in output for non-market producers that is calculated as a sum of costs – this increases value added and GDP
on the expenditure side: GFCF increases; however, there is no impact on GDP because the increase of GFCF is compensated by decrease of final consumption expenditure of government and NPISH

14. Some practical issues (1)
Possible double counting of own-account software
Consumption of fixed capital
The lack of availability of long series of gross fixed capital formation in R&D services
Geometric depreciation function is recommended
Life times of various categories of R&D assets
If no specific information available on service lives: default service life 10 years

15. Some practical issues (2)
Price index to arrive at estimates in volume terms
R&D services cannot be standardised so it is very difficult to define both prices and quantities
input methods can appear as a solution but they exclude the possibility of measuring productivity progress
Including freely available R&D
What about unsuccessful R&D

16. Templates developed by the Task Force on R&D

17. Bridge table from Frascati Manual to output of R&D

18. Estimating GFCF in R&D

19. Manual available on Eurostat website

20. Total impact on EU GDP level – 2010 3.67%
Methodological
changes (ESA 2010)
2.27%
Statistical
improvements
1.40% +

21. Methodological changes (ESA 2010)
Impact on EU GDP 2010 1
Research and development
1.86% 2
Expenditure on weapon systems
0.17% 3
Inexpensive tools for common operations
0.07% 4
Government, public/private sector delineation
0.06% 5
Employers' pension schemes 6
Other methodological changes
0.05% T
Total
2.27%

22. Statistical improvements
Impact on EU GDP 2010 1
New or improved data sources
0.45% 2
Exhaustiveness and improvements related to GNI reservations: illegal activities
0.38% 3
Exhaustiveness and improvements related to GNI reservations: other
0.37% 4
Other statistical changes
0.20% T
Total
1.40%

23. Summarising the changes to EU GDP%

24. Summarising the changes to EU GDP%
Other methodological changes

25. Summarising the changes to EU GDP%
Other methodological changes

26. Summarising the changes to EU GDP%
Other statistical improvements
Other methodological changes

27. Changes in GDP levels: country data%

28. Changes in GDP levels: country data%

29. Changes in GDP levels: country data%

30. Thanks for your attention!