UK InnovatIon InDEX:
Measuring the contribution o innovation to economic growth, and how this varies across sectors
The methodology behind the index, and main improvementsregarding prior versions
At the heart o the Index is a wider and more complete measure o how much theUK invests in innovation, and what the benets o this are to productivity. Thisheadline indicator is supported by three complementary tools: an assessment ohow avourable a climate the UK provides or innovation based upon availableinternationally comparable data,
a company–level innovation measurement tool,
anda public sector innovation index.
The Innovation Index uses investment in intangible assets as the main measure oinnovation investment. Thereore, the Index measures not only scientic R&D, but thedownstream co–investments needed to commercialise and prot rom new ideas.Specically, it includes R&D, design, organisational improvement, training and skillsdevelopment, sotware development, advertising and market research, and otherknowledge investments (e.g., copyright development and mineral exploration).
A growth accounting approach is then used to estimate the contribution oinnovation to productivity growth, in a consistent way with the UK national accounts.Specically, the contribution o innovation includes two components: (a) the directcontribution o investment in intangibles to productivity growth and (b) Total FactorProductivity (TFP), which is a measure o economic growth not accounted byincreases in actor inputs, such as tangible and intangible capital or labour quality,and thereore captures the spill-over benets o innovation investment, but also shortterm fuctuations in capital utilisation and measurement error.Work has continued to improve the methodology behind the Index since its rstpublication. Relative to the prior release, these are the main changes introduced inthis latest version o the Index:
1. More comprehensive industry–level data, providing industry–level estimates oinvestment in intangibles, growth accounting decompositions at the industrylevel and estimates o the contribution o each sector to aggregate productivitygrowth.2. Improved estimates o investment in intangibles, building on data rom the Nesta–ONS Intangible Assets Survey (IAS),
eliminating potential double–counting romoutsourced activity, and incorporating new estimates o UK investment in artisticoriginals.
Tax adjustment o rental prices has also been incorporated to thegrowth accounting analysis.3. Estimates using the most up–to–date ocial data, the ONS 2011 Blue Book, withdata up to 2010 and detailed input–output data up to 2009. EUKLEMS data up to2007 has also been used in the industry analysis.4. A wider coverage o the UK private sector, with the new inclusion o the rangeo consumer, personal and recreational services contained in section ‘O’. Theprivate sector data presented here thereore excludes the public sector, privatedelivery o public services such as education and health, and dwellings (actualand imputed rents).