Friday, July 9, 2010

Research & Development: An Investment or Expense?

Apparently R&D is counted as an expense and not as an investment in the official calculation of gross domestic product (GDP).  This was first brought to my attention by the Levi Institute Multiplier Effect Blog.  One would think that research and development would be counted as investment which makes up a valuable component of GDP.  According to the Bureau of Economic Analysis (BEA) counting R&D as an investment would have increased GDP 2.7% from 1998 to 2007.  The new research from the Bureau of Economic Analysis concludes that:
"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."
R&D should be counted as an investment because it leads to innovation and growth.  R&D has been overlooked and should be treated more seriously as increased R&D spending leads to greater productivity growth.  It would also be valuable to track its role in business cycle fluctuations. 

1 comment:

  1. Theirs not a whole lot of research and development going on down on wall street. Unless its something designed to separate investors from their money.