1

Comments on

The R&D Production Process: Measuring R&D

Kevin J. Stiroh *

Federal Reserve Bank of New York

December 13, 2006

*These comments are the views of the author only and do not necessarily reflect those of the Federal Reserve System or the Federal Reserve Bank of New York.

2

• R&D Issues

• Major Comments– Is R&D fundamentally different?

– Consistency and transparency

• Other Thoughts

Outline

3

R&D Issues

BLS (1989)1) Lags

2) Depreciation

3) Deflator

4) Basic vs. applied research

5) Government vs. private finance

6) Product vs. process

7) Impact of R&D stock on productivity

8) Change in returns over time

“The Impact of Research and Development on Productivity Growth”, September 1989, pg. 6.

BEA (2006)1) Scope of R&D investment

2) Assigning ownership

3) Measure of investment

4) Deflator

5) Depreciation

6) Gestation lags

7) Rates of returns

“R&D Satellite Account: Preliminary Estimates,” September 2006, pg. 18.

4

Is R&D Fundamentally Different?

• Methodology states no– Familiar variables: I, P, , K, r, etc.

– Treat R&D analogously to tangible capital with no explicit spillovers

– “Just” measurement problems

• Language implies yes– Presumption of spillovers due to public good qualities of R&D

• “Measuring R&D” handout • 9/29/06 BEA Press Release• “R&D Satellite Account: Preliminary Estimates”

• Apparent disconnect with important implications– Rate of return

• Firm-level incentives to invest vs. GDP impact

– Some claim IT has spillovers• Would methodology change for tangible capital?• What is burden of proof?

5

Consistency and Transparency

• Will internally consistent industry data be available?– Difficult, but area where biggest value/impact

• Particularly for question of spillovers

– Data ideally presented on par with aggregates• For fixed assets, BEA has disclaimer about industry/asset breakdown

• Will users understand the data and methodology?– More precision about exactly what was done

– Example• Identify “Scenario D” as implemented one only on pg. 56• “Market value” used in various ways

– More equations and definitions would help

6

Other Thoughts

• Alternative scenarios in “R&D Satellite Account” are interesting– Highlight sensitivity and key areas for more work

• Two outsider’s questions:– How does this compare to what BLS does?

– Can BEA sponsor new research on issues such as rates of returns, deflators, and depreciation rates?