EU-R&D in Services Industries and the EU-US R&D Investment Gap

Under the influence of the Lisbon Strategy (2000), the Barcelona 3% objective (2002) for more investment in research in Europe and the renewed Lisbon Strategy (2005), increased attention has been paid by both policy-makers and researchers to the origin of the EU-US R&D investment gap, which lead to a blossoming of papers and studies examining sector-specific contributions to this EU R&D deficit. Given their weight in the economy and relatively low R&D intensity, services industries attracted a lot of attention in this context. Many reports emphasised the importance of services and of more adequate services-specific policies- to increase the overall EU R&D intensity. A large stream of literature investigated the causes of the apparent low services R&D intensity, putting the emphasis on the inadequacies of current statistical systems and the systematic under-recording of services R&D. Recently, various papers started investigating the lack of international comparability in sector-specific R&D expenditure. Very few of them, however, examined this lack of comparability in an EU-US context. This is exactly what this paper is aiming at. In this paper we focus on the impact of differences in practices between national statistical offices in Europe and in the US when classifying the reported R&D expenditure by industry. More in particular we examine the impact of these differences on a correct appreciation of the role of the services sector in the EU-US R&D investment gap. According to official statistics, services industries indeed appear to explain nearly the entire EU-US R&D intensity gap (US services demonstrating much higher R&D intensities than their European counterparts). We argue that this is almost entirely the result of a statistical artefact, i.e. the fact that R&D reported in the services sector is in the EU to a much larger extent redistributed by statistical offices to the corresponding manufacturing sectors (for which R&D has been executed) than in the US. Contrasting with some general beliefs in this matter, we therefore conclude that the EU R&D deficit against the US does not specifically emanate from the services sector.