Methodology - R&D expenditure

Research and development (R&D)

Research and experimental development (hereinafter referred to as R&D) comprise creative and systematic work undertaken in order to increase the stock of knowledge – including knowledge of humankind, culture and society – and to devise new applications of available knowledge (OECD 2015, Frascati Manual). For an activity to be a R&D activity, it must satisfy five core criteria; it must be: novel, creative, uncertain, systematic, transferable and/or reproducible.

The term R&D covers three types of activity: basic research, applied research, and experimental development. Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundations of phenomena and observable facts, without any particular application or use in view. Applied research is original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific, practical aim or objective. Experimental development is systematic work, drawing on knowledge gained from research and practical experience and producing additional knowledge, which is directed to producing new products or processes or to improving existing products or processes.

Characteristics of research and development are surveyed by the Annual report (questionnaire) on research and development, which includes questions on human and financial resources earmarked for R&D activities realized in the territory of the Czech Republic in respective sectors of R&D performance. The statistical survey fully complies with methodological principles of the European Union (EU) and of the Organisation for Economic Co-operation and Development (OECD) mentioned in the Frascati Manual and in the Regulation (EU) 2019/2152 of the European Parliament and of the Council.

Reporting units in the R&D survey are all legal and natural persons performing R&D in the territory of the Czech Republic as their principal (CZ-NACE 72 – Scientific research and development) or secondary economic activity, irrespective of the number of personnel, sector, or CZ-NACE activity.

Sector of research and development performance is a basic category used in R&D statistics, which groups all institutional units performing R&D based on their main functions, behaviour, and objectives. R&D indicators are usually measured and published, also at an international level, in four sectors of R&D performance (hereinafter referred to as sectors): the business enterprise sector, the government sector, the higher education sector, and the private non-profit sector. These sectors were defined based on the Classification of Institutional Sectors and Subsectors used in the national accounts (the European System of National and Regional Accounts (ESA 2010)) and definitions given in the Frascati Manual::

Business enterprise sector (S.11: Non-financial corporations; S.12: Financial corporations; S.141: Employers, and S.142: Own-account workers), which comprises all companies, organisations, and institutions, principal activity of which is market production of goods or services for sale to the general public at an economically significant price. The business enterprise sector mainly focuses on applied research and experimental development. Results of these activities are especially related to innovations, i.e. development of new products or improvement of the existing ones or of provided services. Entities and R&D workplaces in the business enterprise sector are broken down by type of workplace based on the ownership, namely to public enterprises (corporations), private national enterprises (corporations), and foreign-controlled enterprises (corporations);
government sector (S.13: General government) comprises bodies of central and local government, except for publicly managed higher education institutions (CZ-NACE 85.4). This sector especially includes in the Czech Republic workplaces of the Czech Academy of Sciences and other public research institutions. It further includes public libraries, archives, museums, health establishments (excluding teaching hospitals), and other workplaces of the government sector, which perform R&D as their secondary activity;
higher eduction sector (CZ-NACE 85.4: Higher education) comprises all public and private universities and other institutions of post-secondary education with R&D activities and also all research institutes, experimental facilities, and clinics, work of which is directly controlled or managed by higher education institutions or that are associated with them (e.g. teaching hospitals). This sector is not a separate institutional sector, however, it has been separately identified by the OECD because of its important role in R&D;
private non-profit (S.15: Non-profit institutions serving households) comprises private institutions, including private persons and households, whose primary aim is not generation of profit but providing of non-market services to households. They include, e.g., associations of research organisations, associations, unions, societies, clubs, federations, movements, or foundations. The private non-profit sector is insignificant as for R&D performance.

Research and development activities are especially measured in the government sector and the higher education sector in the following six main fields of R&D (broad fields) defined according to an international classification called the Fields of Research and Development Classification (FORD classification): Natural science, Engineering and technology, Medical and health science, Agricultural and veterinary science, Social science, Humanities and arts.

R&D expenditure

Research and development expenditure includes all current expenditure (wages and salaries and other current expenditure) and capital (investment) expenditure spent during the reference year on R&D performed in reporting units (intramural R&D) in the territory of a given country regardless the source or the way of funding.

Surveyed (intramural) R&D expenditure does not include extramural expenditure on R&D performed outside a reporting unit, sector, or country. The intramural R&D expenditure thus excludes expenditure spent on purchase of external R&D from entities performing R&D, sources transferred to other experts within a common R&D project, and subsidies or contributions (financial transfers) provided to third persons for R&D performed at their place.

Total expenditure on R&D made in the territory of a given country is statistically measured by the indicator of the gross domestic expenditure on R&D (GERD). The indicator includes funds received from abroad (i.e. the “rest of the world”) for R&D performed in the territory of the given country; however, it excludes domestic funds provided for R&D performed abroad.

The amount of R&D expenditure made in sectors of performance is measured by the main sources of funding of R&D activities:

funds from the business enterprise sector mainly comprising own (internal) sources of surveyed enterprises earmarked for R&D performed within these enterprises and sources of parent companies funding R&D in their foreign affiliations in the Czech Republic. As for the government sector and the higher education sector, funding from business enterprise sources mainly includes income from sale of R&D services (orders for R&D) and income from royalties and licence fees for intangible results of R&D;
funds from the government sector – national that come from the state budget or budgets of Regions earmarked for R&D performed in the territory of the Czech Republic;
funds from the EU, which include income from Operational and framework programmes of EU.

Besides the aforementioned main sources, also other sources contribute to R&D funding, which mainly comprise own sources of universities and private non-profit institutions originating neither from the state budget, the business enterprise sector, nor from abroad. Other sources also include sources from international organisations outside the EU.