Measuring innovation and intangibles

The latest issue of BEA's Survey of Current Business contains an article Toward Better Measurement of Innovation and Intangibles:

While all countries account for investment in tangible assets in their gross domestic product (GDP) statistics, no country currently includes a comprehensive estimate of business investment in intangible assets in their official accounts. Most economists agree, however, that intangible assets—which represent an important input into the innovative process—are critical components of the modern economy. In the United States, some have suggested that investment in intangible assets now roughly equals investment in tangible assets.

Understanding the role of intangible assets—and thus the role of innovative activity in general—is critical to understanding the modern economy. This article updates the ongoing efforts at the Bureau of Economic Analysis (BEA) to better measure investment in various
intangible assets.

The article gives an overview of the role of innovation in economic growth:

Summing up, the innovation process leads to the creation of economically useful knowledge that exists separately from either people or tangibles, such as equipment or structures. This economically useful knowledge is an intangible that is an output of a productive process as well as an input into the creation of new output. By identifying measures of this knowledge, measuring them using national accounting, and incorporating them into a growth-accounting framework, one can begin to develop a comprehensive set of statistics to better understand innovation as a driver of economic growth.

It then goes on to discuss how these intangibles can be incorporated into the GDP accounts.

BEA is already moving ahead to incorporate R&D as an investment in the GDP accounts by 2013 (see earlier posting). Investments in motion picture and sound recordings will also be incorporated into the GDP accounts. The research behind this article lays the groundwork for further incorporation of intangible investments in the GDP in the future.