Comprehensive Revisions to NIPA: Reconsidering Treatment of R&D and Entertainment

The Bureau of Economic Analysis (BEA) will release its comprehensive revision of the National Income and Product Accounts (NIPAs) next week.  Among other important changes to estimates will be how the statistical agency treats research and development (R&D) and calculates entertainment in measuring gross domestic product (GDP).  The revision generally occurs every 5 years.  Revisions to GDP estimates are not unusual; in fact, as better source data become available, BEA revises the NIPA series, including GDP, three times every year: for 2 consecutive months following each release, and annually.  In addition, every 5 years, BEA comprehensively revises the data, in part tied to the updates of BEA’s input-output tables, which are based on the Census Bureau’s quinquennial Economic Census.

As part of this process, BEA often revises the underlying NIPA methods and definitions.  On July 31, BEA will broaden the definition of GDP regarding R&D expenditures, which have long been viewed as similar to fixed assets—that is, an asset with defined ownership rights that is long-lasting and used repeatedly in the production process.  BEA estimates that capitalizing R&D would have had a $300 billion impact on the economy in 2007.  This change follows years of research, which included publishing a new framework for measuring intangible innovation and the development of better source data to measure accurately the amount of R&D activity.  With this latest revision, BEA will also begin to treat entertainment, literary, and artistic originals, which are designed to generate many copies and can be usefully employed for more than 1 year, as investment rather than expenditures.  BEA will be making other NIPA changes, too:
•Incorporating the benchmark input-output accounts for 2007, which are derived from the Economic Census and set to be released on their own later this year.
•Adding an accrual treatment of defined-benefit pension plans.
•Making statistical changes including improved measures of commercial banking services.
•Changing the reference year for price indices and inflation-adjusted series from 2005 to 2009.
•Changing intellectual property tables and adding new pension tables.

All told, this month’s NIPA revisions will be “comprehensive,” indeed!

%d bloggers like this: