Last week the National Science Foundation (NSF) announced a change in the way that research and development (R&D) expenditures are measured in U.S. gross domestic product (GDP) statistics. R&D is now capitalized (treated as an investment) in U.S. GDP statistics. Previously, private sector R&D expenses, for example, were treated as production costs. Intellectual property products, such as computer software, are a new category in the revised methodology.
These changes in the way the Bureau of Economic Analysis calculates GDP highlight the importance of R&D and recognizes the long-term value of new knowledge and intangible technology. To better understand what the changes mean for our industry, In Compliance asked the NSF a few questions:
In Compliance: Is product compliance testing now considered an investment?
NSF: No. The definition of R&D, whether measured as expenditures by NSF or as investment in GDP statistics by BEA, is based on international standards that emphasize the creation or use of new knowledge. Product testing unrelated to the latter would not be included in NSF R&D expenditures surveys that in turn feed BEA R&D investment calculations.
In Compliance: Does this change represent new government interest in investing in technology?
No. The measurement change is associated with a long held interest in the US (and in other countries that are implementing similar changes in their GDP statistics) to better capture or quantify the role of R&D in the economy. In turn, new measurements (along with other factors) may inform future investment decisions.
In Compliance: Could you explain a bit more about “intellectual property products” being a new category?
NSF: For the purposes of GDP and related statistics, intellectual property products (IPPs) comprise research and development; mineral exploration and evaluation; computer software and databases; and entertainment, literary and artistic originals. IPPs are sometimes called ‘intangibles’. Aggregating investment in IPPs facilitates tracking these activities in comparison with investment in physical capital. Thus the new grouping recognizes the role of intangibles in advanced economies such as the US. (But recall that the changes in GDP statistics are the result of several methodological enhancements, including but not limited to IPPs.)
In Compliance: Will this incentivize private companies to spend more on R&D?
NSF: Not likely. In terms of R&D spending decisions, private companies are typically influenced more by their own R&D costs and expected returns from R&D activities, and by policies that affect these factors. Further, the change in GDP methodology (capitalizing R&D or treating R&D as investment) has no bearing on how companies themselves account for R&D (in terms of expensing vs. capitalizing R&D) in their books. The latter is subject to generally accepted accounting principles, business tax regulations, and other factors unrelated to how national accountants consider R&D in macroeconomic statistics.
Source: NSF
