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Canada's Investments in Science and Innovation: Is the Existing Concept of Research and Development Sufficient?

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  • Beckstead, Desmond
  • Gellatly, Guy
  • Baldwin, John R.

Abstract

Estimates of GDP are sensitive to whether a business expenditure is treated as an investment or an intermediate input. Shifting an expenditure category from intermediate expenditures to investment expenditures increases GDP. While the international guide to measurement (the SNA (93)) recognizes that R&D has certain characteristics that make it more akin to an investment than an intermediate expenditure, it did not recommend that R&D be treated as an investment because of problems in finding a "clear criteria for delineating [R&D] from other activities". This paper examines whether the use of the OECD Frascati definition is adequate for this purpose. It argues that it is too narrow and that attempts to modify the National Accounts would not be well served by its adoption. In particular, it argues that the appropriate concept of R&D that is required for the Accounts should incorporate a broad range of science-based innovation costs and that this broader R&D concept is amenable to measurement. Finally, the paper argues that failing to move in the direction of an expanded definition of R&D capital will have consequences for comparisons of Canadian GDP to that of other countries - in particular, our largest trading partner, the United States. It would provide a biased estimate of Canada's GDP relative to the United States. If all science-based innovation expenditures are to be capitalized, GDP will increase. But it appears that Canada's innovation system is directed more towards non-R&D science-based expenditures than the innovation systems of many other countries. If Canada were to only capitalize the narrow Frascati definition of R&D expenditures and not a broader class of science-based innovation expenditures, we would significantly bias estimates of Canadian GDP relative to those for other countries, such as the United States, whose innovation systems concentrate more on traditional R&D expenditures.

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Bibliographic Info

Paper provided by Statistics Canada, Analytical Studies Branch in its series Economic Analysis (EA) Research Paper Series with number 2005032e.

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Date of creation: 12 Apr 2005
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Handle: RePEc:stc:stcp5e:2005032e

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Web page: http://www.statcan.gc.ca
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Keywords: Innovation; Research and development; Science and technology;

This paper has been announced in the following NEP Reports:

References

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  1. Ulset, Svein, 1996. "R&D outsourcing and contractual governance: An empirical study of commercial R&D projects," Journal of Economic Behavior & Organization, Elsevier, vol. 30(1), pages 63-82, July.
  2. Herbert K. Weiss, 1965. "Some Growth Considerations of Research and Development and the National Economy," Management Science, INFORMS, INFORMS, vol. 11(3), pages 368-394, January.
  3. Edwin Mansfield, 1988. "The Speed and Cost of Industrial Innovation in Japan and the United States: External vs. Internal Technology," Management Science, INFORMS, INFORMS, vol. 34(10), pages 1157-1168, October.
  4. Niosi, Jorge & Godin, Benoit, 1999. "Canadian R&D abroad management practices," Research Policy, Elsevier, vol. 28(2-3), pages 215-230, March.
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  6. Audretsch, D-B & Menkveld, A-J & Thurik, A-R, 1996. "The Decision Between Internal and External R&D," Papers, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM 9603/e, NEUHUYS - RESEARCH INSTITUTE FOR SMALL AND MEDIUM.
  7. Kaiser, Ulrich, 2002. "An empirical test of models explaining research expenditures and research cooperation: evidence for the German service sector," International Journal of Industrial Organization, Elsevier, vol. 20(6), pages 747-774, June.
  8. Kamin, J. Y. & Bijaoui, I. & Horesh, R., 1982. "Some determinants of cost distributions in the process of technological innovation," Research Policy, Elsevier, vol. 11(2), pages 83-94, April.
  9. Palda Kristian & Bornier Jean Magnan de, 1993. "Innovation Policy and Canada's Competitiveness," Journal des Economistes et des Etudes Humaines, De Gruyter, De Gruyter, vol. 4(4), pages 3, December.
  10. James Love & Stephen Roper, 2002. "Internal Versus External R&D: A Study of R&D Choice with Sample Selection," International Journal of the Economics of Business, Taylor & Francis Journals, vol. 9(2), pages 239-255.
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  12. Kleinknecht, Alfred, 1987. "Measuring R&D in Small Firms: How Much Are We Missing?," Journal of Industrial Economics, Wiley Blackwell, vol. 36(2), pages 253-56, December.
  13. Mohnen, Pierre & Lepine, Normand, 1991. "R&D, R&D spillovers and payments for technology: Canadian evidence," Structural Change and Economic Dynamics, Elsevier, vol. 2(1), pages 213-228, June.
  14. Baldwin,John R. & Hanel,Petr, 2007. "Innovation and Knowledge Creation in an Open Economy," Cambridge Books, Cambridge University Press, number 9780521037136, 9.
  15. Beckstead, Desmond & Caves, Richard & Baldwin, John R., 2002. "Changes in the Diversification of Canadian Manufacturing Firms and Plants (1973-1997): A Move to Specialization," Analytical Studies Branch Research Paper Series 2002179e, Statistics Canada, Analytical Studies Branch.
  16. George Papaconstantinou & Norihisa Sakurai & Andrew Wyckoff, 1996. "Embodied Technology Diffusion: An Empirical Analysis for 10 OECD Countries," OECD Science, Technology and Industry Working Papers 1996/1, OECD Publishing.
  17. John Baldwin & W. Brown, 2004. "Regional manufacturing employment volatility in Canada: The effects of specialisation and trade," Papers in Regional Science, Springer, Springer, vol. 83(3), pages 519-541, 07.
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  21. Stead, H., 1976. "The costs of technological innovation," Research Policy, Elsevier, vol. 5(1), pages 2-9, January.
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Citations

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Cited by:
  1. Baldwin, John R. & Gellatly, Guy, 2006. "Innovation Capabilities: The Knowledge Capital Behind the Survival and Growth of Firms," The Canadian Economy in Transition 2006013e, Statistics Canada, Economic Analysis.
  2. Elad Gafni, 2005. "The Diffusion and Adoption of Advanced Technologies in Canada: An Overview of the Issues," CSLS Research Reports, Centre for the Study of Living Standards 2005-05, Centre for the Study of Living Standards.
  3. Nazim Belhocine, 2009. "Treating Intangible Inputs As Investment Goods," IMF Working Papers 09/240, International Monetary Fund.

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