Capitalization of R

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Capitalization of RD in the national accounts of
Israel
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• The exercise performed to test
• Feasibility of using existing RD statistics as a
  basis for estimates of RD assets in national
  accounts.
• Implementation of recommendations developed in
  the framework of the work of the Canberra II
  group during the last 4 years.
• Examination of the impact of RD capitalization
  on the main national accounts aggregates.

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Bridge tables between RD statistics and national
accounts

• Bridging values needed
• Acquisition of extramural RD to be used as
  input in RD production
• Consumption of fixed capital owned by RD
  producers and used in RD production
• Net operating surplus
• Other taxes on production less other subsidies on
  production

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Table 1. Summary of simplified bridge table
results for Israel
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Estimates of RD capital formation

• Supply and use of RD output using the data from
  bridge tables.
• Distinction between market and non-market RD.
• Separation of exports and imports of RD proved
  to be important.
• Constant price estimates prepared in satellite
  accounts since 1989.

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Estimates of RD capital formation (contd.)

• Time lag between the start of RD projects and
  the use of the finalized RD - gestation lag and
  application lag assumed to be 2 years, basing
  on venture capital funds sources.
• Unfinished RD defined as stocks of work in
  progress, considering the high share of RD
  exports in Israel .

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Uses of RDat 2000 prices
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Estimates of service lives of RD

• Original intention to estimate service lives of
  RD in Israel using existing panel data was
  abandoned due to lack of some important
  variables.
• Instead, an average depreciation rate of 0.15,
  derived from the paper by Ballester,
  Garcia-Ayuso, Livnat (2000).
• In future work it will be necessary to improve
  the service life estimates, i.a., by performing
  industry depreciation rates.

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Estimates of RD capital stocks
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Net impact of capitalization of market RD on GDP
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Net impact of capitalization of market and
non-market RD on GDP
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Capital formation compared to depreciation

• Net GFCF obtained is continuously positive, since
  the depreciation is lower than the fixed capital
  formation in most years, due to relatively fast
  growth of the GFCF over the years.
• However, the actual impact of RD capitalization
  on NDP and NNI is different, since other changes
  to registration of output for final use have also
  been made.

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Net fixed capital formation in RD compared to
NNI at market prices
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Conclusions from the exercise

• Feasible to integrate RD statistics in national
  accounts, and obtain RD capital formation and
  stocks.
• The impact of capitalizing market RD amounts to
  about 1.5 of GDP
• The impact of non-market RD is also significant
  - about 1.0 of GDP.

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Conclusions from the exercise (contd.)

• The treatment of non-market RD in this way is
  consistent with the treatment of roads and other
  infrastructure in the current SNA.
• However, it is important to show such RD
  separately, since it is used by other sectors.
• Although the individual use mostly can not be
  identified, the scope of non-market RD used by
  the economy as a whole is of importance.  

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Conclusions from the exercise (contd.)

• The compilation of bridge tables and RD
  capitalization process would very likely lead to
  an improvement of RD estimates in the national
  accounts.
• Improvement seems to be necessary, whether RD is
  capitalized or not. There is a need for separate
  RD accounts of a good quality in the SNA
  framework for economic analysis's and decisions.
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