Postgraduate students at the PhD level and their activities are sometimes R&D and sometimes
not. The important part to remember is the degree of novelty and the objective to produce new
knowledge. Students that study the literature on a given subject, learn research methodology
etc., do not fulfil the criterion of novelty in the definition of R&D.
Therefore, as long as for example the education only aims at teaching the students in well-
known areas, it cannot be labelled as R&D.
5. Institutional classification
Since the Lisbon strategy set specific targets for both the private and public sector it is
important to be able to distinguish between the two sectors.
According to the Frascati manual the business enterprise sector is defined as:
- All firms, organisations and institutions whose primary activity is the market production
of goods or services (other than higher education) for sale to the general public at an
economically significant price. - The private non-profit institutions mainly serving them.
The main part of the sector comprises of private enterprises, whether or not they distribute
profits. In addition, the sector also includes public enterprises mainly engaged in market
production and sale of the kind of goods and services, which are often produced by private
enterprises. To be part of this sector, the prices charged should be related to the value of the
goods and services furnished, the decision to purchase them should be voluntary, and the prices
charged should significantly affect supply and demand.
The government sector is correspondingly defined as:
- All departments, offices and other bodies which furnish, but normally do not sell to the
community, those common services, other than higher education, which cannot otherwise
be conveniently and economically provided, as well as those that administer the state and
the economic and social policy of the community. - Non-profit institutions controlled and mainly financed by government, but not
administered by the higher education sector.
6. Sources of funds
Tracing the flow of R&D funds is extremely important when determining which sector is
responsible for which expenditures. The transfers of resources may be measured in two ways:
Either by the agency providing the money (funding) or by the agency actually performing the
R&D. The Frascati manual recommends the second approach.
In light of the above, when calculating how much a country invests in R&D, the most common
indicator of expenditures on R&D is the so-called “Gross domestic expenditure on R&D
performed on the national territory during a given period” (GERD). GERD includes R&D
performed within a country no matter where the funding comes from but excludes payments for
R&D performed abroad.
Since this paper focuses on the public sector, the important part is to determine how much the
government spends on R&D. For this, there are two ways. The first one is the government-
financed GERD, which identifies the amount effectively spent on R&D over the previous year
and the share financed by the government. The second way uses data from budgets and is based