GDP Boost from Better IP Accounting

Intellectual property rights can be tough to implement—particularly in the era of the Internet. For this reason, intellectual property (IP) has historically been left out of the government's GDP calculations. Recently, however, the Bureau of Economic Analysis (BEA) changed its accounting tactics to include ongoing revenues generated by movies, music, and other forms of entertainment.

Gross domestic product—commonly referred to as GDP—is an overall measure of a country's economic success. To get the GDP, economists tally up the goods and services produced by a particular nation in a set period of time. In the United States, GDP is tallied several times per annum, including at the end of every quarter.

Until recently, GDP did not account for continued profits generated by existing IP products like television programs and movies; it also disregarded entertainment production expenses. During the second quarter of 2013, however, the BEA finalized a modified version of its IP accounting practices. The revisions, which were released on July 31, 2013, include increased intellectual property capitalization.

Essentially, the new rules mean that IP projects are counted as fixed investments. Movie production costs, for example, are now taken into account and listed as expenses. The final product—the film—is now counted as an asset. The new BEA measures also apply to other IP products: music, art, and literature for example.

To make the matter even more complex, the bureau's IP accounting changes also cover enduring returns created by IP products. DVD sales, CD sales, and merchandising profits, for instance, will all be counted in the country's GDP from now on.

The impact of these revisions on US second-quarter GDP was startling: on paper, the country's economy grew by $560 billion overnight. Under the old BEA guidelines, US economic growth would have been 1.4 percent; under the new rules, however, this figure jumped to 2.5 percent.

In everyday life, these BEA changes will have almost no bearing on average American families or on day-to-day business operations. They do have an impact on the country's international image, however. An increasing GDP generally indicates a growing economy: foreign trade is more likely to occur under these circumstances.

The immediate effects of IP product accounting may be short lived. By the end of the third quarter, growth will once again appear much less dramatic. Any foreign trade advantages gained by the second-quarter hike will probably disappear at that point.

Successfully measuring the impact of intellectual property on GDP will likely be an ongoing process. Because of the country's unmatched entertainment production, however, it may be advantageous to include the entertainment industry's ongoing profits in GDP—if only to increase confidence in US markets and improve the country's international reputation.

(Photo courtesy of cooldesign / freedigitalphotos.net)