Archive for the 'Research Development' Category

New Statistics on the Activities of U.S. Multinational Enterprises are Now Available

The Bureau of Economic Analysis has released preliminary 2012 statistics on the outward activities of multinational enterprises (AMNEs). Outward AMNE statistics cover the worldwide activities of U.S. multinational enterprises (MNEs). These statistics provide information on the finance and operations of U.S. MNEs, including balance sheet and income statement details, employment and employee compensation, sales, value added, capital expenditures, trade in goods, and expenditures for research and development (R&D). The statistics can be used to measure the scale of the global business activity of U.S. MNEs as well as their impact on the U.S. economy and foreign host economies.

The worldwide operations of a U.S. MNE can be divided between its domestic operations, represented by the U.S. parent company, and its foreign operations, represented by foreign affiliates. Statistics for foreign affiliates are presented for two categories—all affiliates, which are at least 10 percent owned by their U.S. parents, and majority-owned foreign affiliates (MOFAs), which are more than 50 percent owned by their U.S. parents.

Highlights of the new data include:

  • The value added of U.S. MNEs rose 2.0 percent to $4,667.0 billion in 2012 after rising 9.2 percent in 2011. The increase reflected a 2.7 percent increase in the value added of U.S. parents and a 0.3 percent increase in the value added of their MOFAs.
  • Employment by U.S. MNEs increased 1.1 percent to 35.2 million workers in 2012 after increasing 2.2 percent in 2011. The increase reflected a 0.5 percent increase in the employment of U.S. parents and a 2.2 percent increase in the employment of MOFAs. U.S. parents accounted for one-fifth of the total U.S. private industry employment in 2012.
  • U.S. MNE capital expenditures rose 12.2 percent in 2012, reflecting growth for both U.S. parents (10.7 percent) and MOFAs (16.4 percent).
  • U.S. MNE R&D expenditures rose 3.6 percent in 2012, reflecting growth for U.S. parents (4.4 percent) and a slight decline for MOFAs (–0.2 percent).
  • Fifteen countries—the United Kingdom, Canada, Germany, Ireland, Australia, Japan, France, China, Brazil, Mexico, Singapore, Switzerland, the Netherlands, Norway, and Italy—accounted for more than two-thirds of value added by MOFAs in 2012.

The newly released statistics also include revised 2011 statistics on the outward activities of multinational enterprises.

BEA also produces inward AMNE statistics that cover U.S. affiliates of foreign MNEs; these statistics will be released later this year.

Starting with the release of the 2012 preliminary and 2011 revised statistics, BEA has adopted the use of standard international terminology in BEA’s international economic accounts by replacing the term “multinational companies” with “multinational enterprises” and the term “financial and operating (F&O)” statistics with “activities of multinational enterprises (AMNE).” This change in terminology reflects BEA’s effort to conform more closely with international guidelines and does not affect the actual statistics produced.

A New Look at State-Level R&D by Multinational Companies

The amount of research and development (R&D) generated by multinational companies varies widely across U.S. states.

A new examination of data shows that the R&D performed by foreign-owned U.S. affiliates in 2007 ranged from $1 million in South Dakota to $5.3 billion in California. In addition to California, the R&D of U.S. affiliates was higher than $2.5 billion in three other states: New Jersey, Pennsylvania, and Michigan.chart 1_0920

The R&D performed by U.S. parents of foreign affiliates ranged from $8 million in Wyoming to $43 billion in California.  In nine other states—Massachusetts, Michigan, New Jersey, Washington, Texas, Illinois, Pennsylvania, Connecticut, and New York—the R&D of U.S. parents was higher than $5 billion.

chart 2_0920

The state-level data recently became available through an interagency project that linked information from the Bureau of Economic Analysis’ annual surveys of multinational companies to information from the Survey of Industrial Research and Development conducted by the Census Bureau for the National Science Foundation.

The new research shows that states with the highest levels of R&D performed by multinationals tend to be the states that also have the highest levels of R&D generated by all U.S. businesses.

There are, however, significant differences among these states in terms of the relative importance of R&D performed by U.S. affiliates.table 1_0920

California, the top-ranking state for R&D performed by both U.S. affiliates and all U.S. businesses, accounts for 24 percent of the total R&D performed by all U.S. businesses but for only 16 percent of the total R&D performed by U.S. affiliates.  Reflecting this disparity, the share of California’s gross domestic product (GDP) (adjusted to count R&D expenditures as investment) accounted for by all-U.S.-business R&D is 3.3 percent, but the share accounted for by affiliate R&D is only 0.3 percent.

In contrast, New Jersey, which ranks second in terms of R&D performed by U.S. affiliates and third in terms of R&D performed by all U.S. businesses, accounts for 14 percent of the total R&D of affiliates but for only 7 percent of the R&D of all U.S. businesses.  The share of GDP in New Jersey accounted for by affiliate R&D (1.0 percent) is much closer to the share accounted for by R&D by all U.S. businesses (3.6 percent) than is the case for California.

In addition to New Jersey, the state shares of affiliate R&D are relatively large in Pennsylvania and North Carolina.  A common characteristic of these states is a high concentration of R&D activity in the chemicals industry (mainly pharmaceuticals).

For U.S. parent companies, the state shares of total R&D more closely match the state shares of R&D performed by all U.S. businesses.table 2_0920

For California, New Jersey, and North Carolina, the state shares of total parent R&D are almost identical to the state shares of total R&D for all U.S. businesses.  The variation across states in the percentage of state GDP accounted for by parent R&D closely tracks that for the percentage accounted for by all-U.S.-business R&D.

To learn more about the state distribution of R&D performed by U.S. affiliates and U.S. parent companies, read the full report.

 

 

Changes to How the U.S. Economy is Measured Roll Out July 31

A pharmaceutical company develops a new cancer drug. A Hollywood studio creates a box-office blockbuster.  A song writer records a new hit.  On July 31, BEA will begin including the amount of money businesses invest in the production of such intellectual property as part of gross domestic product (GDP).

Why?

Art for GDP Changes BlogThe changes reflect updated international guidelines for national economic accounting—the United Nations’ System of National Accounts 2008 (SNA).   It’s important that economic measures keep pace with a changing global economy and that GDP statistics from different countries use a common set of guidelines for comparability.

Australia and Canada already implemented some of the changes outlined in the 2008 SNA. The United States is taking steps later this month. Europe is expected to act next year.

Expenditures for research and development (R&D) and for entertainment, literary, and artistic originals have many of the characteristics of other fixed assets—ownership rights can be established, the assets are long-lasting, and they are used repeatedly in the production process. Thus, the SNA recommends that expenditures on the production of these types of intangible assets, or intellectual property, be treated as fixed investment. That’s consistent with the way we treat the production of tangible assets like a new drill press in a factory.

Art 2 for GDP Changes BlogCurrently, we count spending on R&D and on the creation of entertainment, literary, and artistic originals as intermediate inputs used up during the production of other goods and services. As a result, the contribution of these important innovative activities to economic growth and productivity is difficult to measure. Right now, these investments don’t show up directly in GDP, although sales of drugs and copies of DVDs, CDs, Blu-ray discs and digital downloads are counted.

By recognizing expenditures on R&D and on entertainment, literary, and artistic originals as investment, the contribution of these components to economic growth can be measured.

BEA already includes some intangible assets as fixed investment, notably software development and mineral exploration.  The new expenditures for R&D and for entertainment, literary, and artistic originals will be grouped with expenditures for software into a new investment category called “intellectual property products.”

Pension Plans

BEA will also improve the way we count defined benefit pension plans in the GDP accounts.

Unlike defined contribution plans like 401(k)s, defined benefit pension plans provide a benefit to employees based on factors such as length of service and salary history.

Employers provide these promised benefits to employees through a pension fund. Employers, and in some cases employees, make cash contributions to the fund. In addition, the fund holds financial assets, earns income and capital gains on those assets, and pays out benefits to retirees and beneficiaries.

On July 31, we will switch from a cash accounting method to an accrual accounting method to measure the transactions of defined benefit pension plans. That means we will count the benefits as employees earn them, rather than when employers actually make cash payments to pension plans.

Accrual accounting better reflects the retirement benefits an employee earns while working and improves our measures of compensation by more closely aligning the accrual of retirement benefits with the employee’s work. Accrual accounting is also consistent with business accounting standards, and the SNA recommends that countries adopt this accounting method.

The problem with the current cash accounting approach is that employers sometimes make sporadic cash contributions to the pension funds. This results in volatility in BEA’s measure of compensation that does not accurately reflect the relatively smooth manner in which benefits are earned by the employee.

The new measures for pension income and the expanded coverage of intellectual property are two of the major changes BEA is making to how we measure GDP.  To find out more, visit our Web page on the comprehensive revision to GDP.