Understanding R&D performance: A note on a new OECD indicator

This paper deals with various technical issues relating to the use of R&D statistics. But these technical issues are of considerable importance in understanding R&D performance, and therefore in identifying policy problems and policy objectives. The basic problem follows from the use of 'R&D intensity' - meaning the R&D/Value Added or R&D/Sales ratio - as an overall indicator for the manufacturing sector of the economy, or for the economy as a whole. This particular measure has become extremely popular as an overall performance indicator, and is frequently used by policymakers, especially for international comparisons. However the indicator has a serious weakness, which is that it reflects not just R&D performance, but also the industrial structure in which R&D is carried out. So the indictor cannot be used - as it frequently is - simply as a measure of relative R&D strength.