Accumulation accounts

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Capital account

127. The main thrust of the change in the treatment of R&D is reflected in the capital account. The reclassification of R&D to FCF impacts GDP. In addition, this new investment drives corresponding changes to the capital stock in the balance sheet account.

Table 8
Capital and finance account—System of National Accounts – Total economy, additional impact, 2004

128. The change in the treatment of capital would result in a $24.2 billion increase in fixed capital formation in 2004 (see Table 8). This represents an 8.5% increase from the current estimate. Of this, 58% or $14.0 billion is business capital formation.

129. Net lending for the total economy remains unchanged since the increase in the capital account is offset by the increase in saving. All sectors register no change in net lending. On the other hand, gross saving increase by the same amount as gross investment. There is no impact on the financial account.

130. The nature of investment activities of the sectors involved in R&D differ. Business sector investment is much more likely to be applied research or experimental development than R&D in the government sector. Data is available on types of R&D for the business sector but not specifically for the government sector. Basic research comprises 4.5% of total expenditure for businesses in 2004. A U.S. study indicated that approximately two-thirds of university and one-quarter of government R&D spending was on basic research.³¹

131. Service life information for R&D investment is not directly available from the FM data however several scenarios of government CFC were calculated. Since government R&D is more focused on basic research, service lives may be fairly stable over time and were set at ten years as the base case for this study. Several other service life options were also calculated (five, seven and twenty years). The impact on government depreciation varied by up to $1.3 billion in 2004 from the base case as a result of these various options.

Graph 2
Consumption of fixed capital service life scenarios, government sector

132. The additional impact of R&D on investment varies from 7.1% to 8.8% over the 1997 to 2004 period in the base case scenario. This reflects the increase in investment for all sectors. The total investment includes the R&D components already treated as investment in the accounts. In 2004, this represented 9.3% of total investment. The difference between the additional and total impact widens slightly over time as software R&D becomes an increasingly important component in total R&D.

Graph 3
Research and development impact on investment

 

³¹ . See "A Satellite Account for Research and Development" by Carol S. Carson in Survey of Current Business, November 1994, Volume 74, no. 11.