GDP 2.7% Higher If R&D Treated As Investment

From the BEA.

Gross Domestic Product (GDP) would have been, on average, 2.7 percent, or $301.5 billion higher between 1998 and 2007 if research and development (R&D) spending was treated as investment in the U.S. national income and product accounts, the Bureau of Economic Analysis (BEA) announced today.  The 2010 R&D Satellite Account updates and extends BEA’s estimates of the effect of R&D on economic growth through 2007, and now includes coverage of the most recent business cycle expansion.

R&D accounted for about 6.3 percent of average annual growth in real GDP—that is, GDP adjusted for inflation—between 1998 and 2007, and 6.6 percent between 2002 and 2007. To put the contribution of R&D in perspective, the business sector’s investment in commercial and other types of structures accounted for just over 1.3 percent of average annual growth in real GDP between 1998 and 2007.

Highlights of the release include:

By treating R&D as investment, real GDP increased at an average annual rate of 3.0 percent over the period 1998-2007.  As in previous periods, growth in R&D investment continued to track business cycles.  R&D’s contribution to growth slowed in 2001 and 2002, recovered in 2003, and outpaced the expansion through 2007.  In 2002, business sector R&D subtracted from growth, but was more than offset by contributions from the government and nonprofit sectors.

Chart 1. Real GDP Adjusted by Treating R&D as Investment and Real R&D Investment

Biotechnology and information, communication, and technology (ICT) industries accounted for four-fifths of the business sector’s R&D contribution to GDP growth between 1998 and 2007.

Chart 2. Sources of Business R&D’s Contribution to Real GDP Growth, 1998-2007

By 2007, biotechnology-related industries’ share of the business sector’s R&D investment was about 29 percent, more than double its share in 1998.  The share of business sector R&D accounted for by ICT industries increased slightly, to 32 percent.

Chart 3. Shares of Private Business Investment in R&D by Selected Industries, 1998 and 2007

¹ Consists of computer and electronic products within durable-goods manufacturing; publishing industries (includes software) and information and data processing services within information; and computer systems design and related services within professional, scientific, and technical services.
² Consists of pharmaceutical and medicine manufacturing and scientific R&D services.

Source: 2010 Satellite Account Underscores Importance of R&D – BEA