Software R&D: Revised Treatment in U.S. National Accounts and Related Trends in Business R&D Expenditures
Research and development in software contributes to emerging research, investment, and economic policy areas, such as artificial intelligence, information and communication technologies (ICT), and the digital economy. Accordingly, software R&D is an increasingly large technology area of U.S. business R&D expenditures. For example, in 2016, software R&D accounted for $120.8 billion of the $374.7 billion in U.S. business R&D, or 32%, compared with 20% in 2006, as reported by the National Center for Science and Engineering Statistics (NCSES) within the National Science Foundation. A recent change in the treatment of software R&D in the U.S. gross domestic product (GDP) and other national income and product accounts (NIPAs), published by the Bureau of Economic Analysis (BEA), underscores the importance of software for U.S. R&D statistics. R&D was capitalized, or recognized as investment (gross fixed capital formation [GFCF]), for the first time in the U.S. NIPAs in 2013 (Crawford et al. 2014; Moris et al. 2015). At that time, software R&D expenditures were capitalized under software investment—not under R&D—to avoid duplication, because software was already considered a fixed asset. However, this also meant that for NIPA purposes, “R&D investment” was effectively non-software R&D investment, in contrast to NCSES’s inclusion of both software and non-software R&D in total U.S. R&D expenditures. The 2018 Comprehensive Update of the NIPAs reclassified software R&D as R&D investment to resolve the above inconsistency (Chute, McCulla, Smith 2018). This InfoBrief presents updated BEA data on R&D investment and software investment and examines NCSES total R&D expenditures and business software R&D expenditures.