Estimating cross-border R&D spillover effects

Survey of Current Business, July, 2005

The Bureau of Economic Analysis (BEA) has initiated a project, funded by the National Science Foundation, to produce a satellite account that estimates the economic contribution of research and development (R&D).

Satellite accounts are designed as supplements to BEA's national income and product accounts and input-output accounts.

A necessary step toward developing an R&D satellite account is to develop a framework for measuring cross-border spillover effects. R&D spillovers are defined as R&D-based economic contributions from entities that did not originate the R&D. To account for such spillovers, BEA economist Lawrence R. McNeil and BEA Chief Economist Barbara Fraumeni surveyed the literature on country-level spillover effects.

Their BEA working paper concluded that an approach suggested by Bin Xu and Jianmao Wang in "Capital Goods Trade and R&D Spillovers in the OECD," published in the Canadian Journal of Economics, might be the most appropriate trade-based methodology through which spillovers can be captured.

McNeil and Fraumeni suggest an approach, relying on Xu and Wang's empirical research, to formulating accounts that would include outward and inward spillovers in gross domestic product (GDP), similar to the way exports and imports of goods and services are included in GDP estimates. BEA plans additional research in this area.

The working paper can be found on the BEA Web site, <www.bea.gov>, by clicking on "Papers and Working Papers."