Table of Contents1.GENERAL......................................................................................................112.MAIN FINDINGS............................................................................................12

2.1 National Expenditure on R&D, by Type of Expenditure....................................152.2 Financing the National Expenditure on R&D....................................................152.3 Employed Persons in R&D in the Business Sector...........................................162.4 International Comparison. . ...............................................................................16

2.4.1 International comparison of R&D, by operating sector.............................182.4.2 International comparison of R&D, by financing sector..............................182.4.3 International comparison of financing for civilian R&D from government

ministries, by objective................................................................................182.4.4 International comparison of R&D personnel in the business sector.........19

2.5 Further Details about the Expenditure of Government Ministries on R&D........212.5.1 Summary of the expenditure on R&D in government ministries...............212.5.2 Government expenditure, by objective.....................................................222.5.3 Expenditure of selected government ministries........................................223.TERMS, DEFINITIONS AND EXPLANATIONS.............................................25

3.1 Definition of R&D..............................................................................................253.2 Classification by Sector.....................................................................................27

3.2.1 Classification by operating sector.............................................................283.2.2 Classification by financing sector.............................................................29

3.3 Classification by Scientific Field........................................................................293.4 Classification by Objective................................................................................293.5 Administrative Classification.............................................................................313.6 Classification by Industry..................................................................................31

4.METHODS AND SOURCES..........................................................................324.1 Business Sector................................................................................................324.2 General Government Sector.............................................................................32

4.2.1 Government ministries.............................................................................324.2.2 Local authorities and national institutions.................................................334.2.3 Public non-profit institutions......................................................................33

4.3 Private non-profit institutions sector..................................................................334.4 Higher education sector....................................................................................33

4.4.1 Current budget.........................................................................................344.4.2 Specially financed research......................................................................344.4.3 Internal institutional research funds..........................................................34

4.5 Preliminary Estimates.......................................................................................344.5.1 The business sector.................................................................................344.5.2 The general government sector................................................................344.5.3 Private non-profit institutions sector.........................................................354.5.4 The higher education sector.....................................................................35

4.6 Other Adjustments............................................................................................354.7 Estimates at Constant Prices ...........................................................................35Sources and Methods for the International Comparison.........................................364.8 Sources.............................................................................................................364.9 Methods............................................................................................................36

4.9.1 Purchasing Power Parity (PPP)................................................................364.9.2 Averages for financing and performance......................................................

....................................................................................................................364.9.3 Civilian and general R&D.........................................................................365.RELIABILITY OF THE DATA.........................................................................376.REVISIONS AND IMPROVEMENT OF THE ESTIMATES............................37

1. GENERALThis publication presents a summary of national expenditure on civilian research and development (R&D) for the years 1989–2014, and provisional estimates for 2015 and 2016, by operating sector and financing sector. Comparisons between Israel and industrial countries for the years 2015 and 2016 (the last years for which data on these countries are available) are also presented. Data on R&D expenditure of government ministries in 1990–2016 are provided as well.

Summaries of national expenditure on R&D were prepared for National Accounts, similar to those that were prepared in other fields such as education, health and culture. These summaries are part of the satellite accounts, which are intended to supplement the basic national accounts (product account, income and expenditure, investment and its financing, etc.) and focus on specific issues. Satellite accounts consolidate the value of goods and services produced by different industries for a specific purpose into one framework, and show the use of these goods and services and their financing sources, by sector. The satellite accounts have a more detailed classification than that of the basic national accounts, and in some cases a different classification is used. Satellite accounts are operated according to the recommendations of the new System of National Accounts (2008 SNA) which was published in 2009 by the statistical offices of five international organizations: the European Union, the International Monetary Fund (IMF), OECD, the United Nations, and the World Bank.1

This publication includes main findings of the national expenditure on R&D, a description of the statistical system, definitions and classifications, methods of estimation and data sources, as well as sources of the data for international comparison.

A detailed description of specific problems related to measurement of expenditure on R&D, and suggested solutions to those problems, are presented in Appendix 1.

The tables present the following:

(a) National expenditure on civilian R&D by operating sector for 1993-2015, at current and constant prices, and changes in percentages (Table 1).

(b) A summary of national expenditure on civilian R&D for 2014 and 2015, based on a combined classification by the operating sector and financing sector of the research activity (Tables 2-3); a breakdown of expenditure in 2015, for each sector that conducted research and development, by type of expenditure – labour cost, intermediate consumption and capital formation (Table 4).

(c) Summaries of expenditure of government ministries on R&D in 1991–2016, by type of expenditure – intramural expenditure, R&D purchase, and transfers to

1 See: Commission of the European Communities & al (2009). A System of National Accounts. New York: Author.

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other sectors (Tables 5-8), expenditure on civilian R&D of selected government ministries in 2002-2016 (Tables 9, 10), and a breakdown of the expenditure of government ministries, by objective, in 2004-2016 (Table 11).

(d) A breakdown of R&D expenditure of non-profit institutions for 2014, by scientific field and type of expenditure (Table 12).

(e) Development of expenditure on civilian R&D in selected manufacturing industries, from 1989 to 2015 in Israel, by industry2 (Tables 13A and 13B).

(f) International comparisons of expenditure on R&D in Israel and in OECD countries for 2015 (Tables 14-21).

(g) International comparison of intramural expenditure on R&D in selected manufacturing industries, by industry, in Israel and in OECD countries, 2015, (Table 22).

(h) International comparison of financing for civilian R&D from government ministries, by objective, in Israel and in OECD countries, 2016 (Table 23).

(i) International comparison of R&D personnel in the business sector in Israel and in OECD countries, 2015 (Table 24).

2. MAIN FINDINGSResearch and Development is defined as systematic and original activity intended to create new scientific or technological knowledge, or to develop a new application of existing scientific or technological knowledge. The total national expenditure on civilian R&D includes the value of goods and services produced in Israel for civilian R&D in the Manufacturing industry as well as in other industries in the business sector,3 in the universities, in the general government, and in various research institutions, including R&D conducted by foreign companies in Israel.

2 As of 2011, industries are classified according to the Standard Industrial Classification of all Economic Activities 2011. See: Central Bureau of Statistics (2012). Standard Industrial Classification of All Economic Activities 2011. Technical Publication No. 80. Jerusalem: Author.

3 See: definition of the Business Sector in Paragraph 3.2(a).

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101520253035404550

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billi

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* Provisional data.

A. NATIONAL EXPENDITURE ON CIVILIAN R&D (AT 2010 PRICES)1993–2016

National expenditure on civilian R&D, at current prices, amounted to NIS 52 billion in 2016, and was 4.3% of the GDP, similar to 2015 and higher than in 2014 (Table A). According to provisional estimates, in 2016 the national expenditure on civilian R&D at constant prices increased by 0.7%, following an increase of 7.0% in 2015 and an increase of 2.3% in 2014.The development in constant prices reflects a 0.6% increase in expenditure on R&D in the business sector in 2016, following an increase of 8.0% in 2015, and an increase of 2.7% in 2014.The increase in the expenditure on R&D performed in the business sector in 2016 mainly reflects an increase of 1.7% at constant prices in the Computer Programming, Consultancy and Related Activities industry (Division 62), following an increase of 9.1% in 2015 and of 7.8% in 2014. In the Scientific Research and Development industry (Division 72), which includes international R&D centres, start-up companies, technological incubators and research institutes, R&D expenditure decreased by 8.0%. This decrease followed an increase of 11.6% in 2015 and an increase of 1.9% in 2014. In the Manufacturing industries (Section C), there was an increase of 0.6% in 2016, following an increase of 3.8% in 2015 and 2.2% in 2014. The expenditure on R&D in development centers of international companies amounted to approximately NIS 22.3 billion in 2015, an increase of 8% at current prices, compared to 2014. In these companies, R&D is entirely designated for use abroad.The expenditure of the general government sector on R&D increased by 3.5% in 2016, following an increase of 3.4% in 2015 and an increase of 1.6% in 2014. The expenditure on R&D in higher education institutions in 2016 increased by 1.0%, following a similar increase in 2015. In private non-profit institutions, R&D expenditure increased by 5.9%, following an increase of 3.2% in 2015.Expenditure on civilian R&D in the business sector at current prices amounted to NIS 44 billion in 2016, comprising 86% of the total national expenditure on civilian R&D.

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The remainder was expenditure on R&D carried out in the higher education sector (12%), in the general government (2%), and in private non-profit institutions (1%).

0102030405060708090

100

Business General government Higher education Private non-profitinstitutions

Perc

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* Provisional data.

B. NATIONAL EXPENDITURE ON CIVILIAN R&D,BY OPERATING SECTOR

2014, 2016

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TABLE A.- NATIONAL EXPENDITURE ON CIVILIAN R&D, BY SELECTED MACRO-ECONOMIC INDICATORS, 2009–2016, PERCENTAGES

Indicator 2009 2010 2011 2012 2013 2014 2015* 2016*

1. National expenditure on civilian R&D, as a percentage of:

Domestic productGross domestic product 4.1 3.9 4.0 4.2 4.2 4.2 4.3 4.3Net domestic product 4.8 4.6 4.6 4.8 4.8 4.8 4.9 4.9Domestic capital formationGross domestic capital formation 22.2 21.0 19.4 19.3 20.5 20.6 21.4 20.5Gross domestic fixed

capital formation 22.2 20.9 19.7 20.0 20.5 21.1 22.6 21.0

Gross domestic capital formation, by industry (excl. residential buildings) 30.9 29.9 28.2 28.8 30.3 32.0 34.5 31.4

2. Business sectorCivilian R&D operated,

as a percentageof gross fixed capital formation 18.5 17.3 16.5 16.8 17.3 17.9 19.2 18.0

*Provisional data

2.1 National Expenditure on R&D, by Type of Expenditure

Labour cost comprised 79% of the total expenditure on research and development in 2015. Intermediate consumption costs, e.g., purchase of materials and energy products, excluding depreciation, comprised 14%, and fixed capital formation, such as acquisition of buildings, equipment, and vehicles, comprised 7% of the total expenditure on R&D.

2.2 Financing the National Expenditure on R&D

The most recent data on the distribution of financing for 2015 show that the business sector financed 34% of all civilian R&D expenditure in Israel, compared to 35% in 2014 and 37% in 2013. In 2015, the general government financed 13% of the expenditure (mainly through transfers to higher education institutions and to the business sector), compared with 14% in 2014 and similar to 2013. Higher education institutions financed less than 1% of the expenditure, private non-profit institutions financed about 1%, and 52% of the national expenditure on civilian R&D was financed by funds and donations from abroad.

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The general government financed, through transfers, 65% of the expenditure on R&D conducted by higher education institutions, and 31% of R&D conducted by private non-profit institutions. In addition, 3% of R&D conducted by the business sector was financed by the general government through grants and subsidies.

2.3 Employed Persons in R&D in the Business SectorIn 2015, 76,646 persons were employed in business R&D. The number of full-time jobs in this sector amounted to 70,494. Of those employed persons, 81% were academic professionals, 12% were practical engineers and technicians, and 7% were persons with other levels of education.

2.4 International Comparison

In 2015, national expenditure on civilian R&D in Israel as a percentage of the GDP was 4.3%, the highest in all of the developed industrialized countries that are members of the OECD. The share of R&D expenditure out of the GDP in South Korea was slightly lower – 4.1%, and in Austria, Japan, and Sweden it ranged from 3.1% to 3.5%. In Australia, the United States, Belgium, Germany, Slovenia, Finland, the Czech Republic, France, and Switzerland, it was between 2.0% and 2.9%. In the rest of the OECD member countries the share of expenditure on civilian R&D out of the GDP ranged from 0.4% to 1.6%.

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2.4.1 International comparison of R&D, by operating sector

In 2015, the expenditure of the business sector on R&D as a percentage of the total national expenditure on R&D in Israel (85.6%) was higher than the average for the OECD countries (58.7%). In Japan, Slovenia, and South Korea the percentage was higher than 75%. In Austria, the United States, Ireland, Belgium and Switzerland it was higher than 70%; and in all other OECD member countries the percentage was lower than 70%.

In 2015, the share of the general government in the national expenditure on R&D in Israel (1.7%) was lower than the average for the OECD countries (12.6%). The share of the R&D performed by the higher education sector in Israel (11.7%) was lower than the average for the OECD countries (28.0%) and the expenditure of private non-profit institutions on R&D in Israel (1.0%) was also lower than the average for the OECD countries (1.6%).

2.4.2 International comparison of R&D, by financing sector

Comparison of financing by sector between Israel and the OECD countries indicates that in 2015 the R&D expenditure financed by the business sector in Israel (34.3% of the national expenditure on R&D) was lower than the average for the OECD countries (47.8%). In South Korea and Japan, the percentage of R&D financed by the business sector was especially high (74.5% and 78%, respectively). General government financing of the national expenditure on R&D in Israel (12.8% of the national expenditure on R&D) was lower than the average for the OECD countries (34%) as well. In Mexico the share of the general government financing of R&D was especially high (71.2%), and in Greece the share of the general government financing of R&D was 52.7%. R&D financing by the higher education sector (0.4%) and the private non-profit institutions (0.9%) in Israel was also lower than the average for the OECD countries (2.9% and 1.7%, respectively), whereas financing from abroad, which amounted to 51.6% of the national expenditure on R&D in Israel, was significantly higher than the average for the OECD countries (13.6%).

2.4.3 International comparison of financing for civilian R&D from government ministries, by objective

In 2016, the share of financing allocated for advancement of general knowledge (General University Funds4 and non-oriented research) in Israel amounted to 55.2% of total R&D financing by government ministries, higher than the average for the OECD countries – 52.5%. In Switzerland the financing was 90.9%, in Sweden it was 76.7%, and the lowest share was in the United States (15.8%). The share of expenditure on advancement of industrial technology in Israel was 30.7% of the total R&D funds allocated by government ministries, compared to an average of 11.5% in the OECD countries. The share of financing was high in South Korea (33.8%) and in Belgium (32.1%).The share of financing of health in Israel amounted to only 0.4% of

4 Of the Planning and Budgeting Committee of the Council for Higher Education.

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total R&D funds allocated by government ministries, compared to a 10.5% average for the OECD countries. The highest rate was in the United States – 49.3%.

2.4.4 International comparison of R&D personnel in the business sector

In 2015, the number of full-time equivalent jobs in R&D in the Israeli business sector was lower than the average for the OECD countries (70,494 compared with 126,760, respectively). The highest number of full-time equivalent jobs was recorded in the United States – 1,399,000, followed by Japan – 592,175; Germany – 404,767; and South Korea – 323,652. In Italy, the United Kingdom, France, and Canada it ranged from 128,563 to 251,444, and in the rest of the OECD member countries – from 1,604 to 87,432. The lowest number of FTE was recorded in Iceland – 1,604.

In 2015, the share of researchers out of every 1,000 persons employed in the Israeli business sector was 24.4% – higher than the average for the OECD countries (6.6%). In Denmark, Finland, South Korea, and Sweden the share of researchers was higher than in the rest of the OECD countries (between 12.2% and 14.2%) and in the rest of them it ranged from 0.2% (Mexico) to 9.4% (the United States and Japan).

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MexicoChile

SlovakiaGreeceTurkeyPoland

EstoniaItaly

LuxembourgSpain

PortugalNew Zealand

Czech RepublicHungaryAusralia

United KingdomSlovenia

SwitzerlandIceland

OECD averageCanada

NetherlandsGermany

IrelandAustria

BelgiumNorwayFrance

United StatesJapan

FinlandDenmark

South KoreaSweden

Israel*

0 3 6 9 12 15 18 21 24 27 30

D. R&D RESEARCHERS IN THE BUSINESS SECTOR – SELECTED OECD COUNTRIES

2015

Per 1,000 employed persons in the business sector

*Excl. defence R&D.

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2.5 Further Details about the Expenditure of Government Ministries on R&D

2.5.1 Summary of the expenditure on R&D in government ministries

The expenditure on civilian R&D in government ministries amounted to approximately NIS 7.9 billion in 2016 (Table B below), including research, commissioning of research from other institutions, and transfers from other sectors such as the Planning and Budgeting Committee for financing of R&D.

TABLE B.- EXPENDITURE OF GOVERNMENT MINISTRIES ON R&DAND FINANCING CIVILIAN R&D2009–2016

Type of Expenditure 2009 2010 2011 2012 2013 2014 2015* 2016*

Total financing and intramural expenditures on R&D by government ministries (1) (NIS million, at current prices) 5,006 5,391 5,802 6,257 6,474 6,895 7,203 7,885a. Expenditure on civilian R&D by government ministries, as a percentage of current general government expenditure (Percentages) 1.68 1.71 1.76 1.77 1.73 1.77 1.76 1.74b. Expenditure on civilian R&D by government ministries, as a percentage of the general government expenditure on civilian consumption (Percentages) 3.72 3.69 3.71 3.70 3.57 3.64 3.64 3.58Intramural expenditures on R&D by government ministries (NIS million, at current prices) 643 695 785 785 803 855 863 881a. Total expenditure on operation of civilian R&D, as a percentage of current general government expenditure(Percentages) 0.22 0.22 0.24 0.22 0.21 0.22 0.21 0.21b. Operation of civilian R&D, as a percentage of general government consumption (Percentages) 0.35 0.35 0.37 0.35 0.33 0.34 0.33 0.32

(1) Including the Planning and Budgeting Committee.

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2.5.2 Government expenditure, by objective

The breakdown of expenditures by government ministries on civilian R&D by objective shows that in 2016, the share of grants for the advancement of research amounted to 55%. These grants mainly include financing of the Planning and Budgeting Committee, and are directed to the universities in Israel.

Expenditures for advancement of industrial technology amounted to 31%. The main expenditure in this objective was for grants awarded by the Ministry of Economy and Industry to industrial companies; 5% of the R&D expenditure in 2016 was allocated to research and development in agriculture; 3% for research in social services – education, labour and social welfare, immigrant absorption, etc., and 2% of the budget was allocated for R&D in infrastructure (including research on transport and on urban and rural planning).

TABLE C.- EXPENDITURE OF GOVERNMENT MINISTRIES ON FINANCING CIVILIAN R&D,(1) BY OBJECTIVE2009–2016

2016*2015*201420132012201120102009Objective

7,8857,2036,8956,4746,2575,8025,3915,006

Total(NIS million at current prices)

100.0100.0100.0100.0100.0100.0100.0100.0Total

55.257.255.356.853.255.153.549.7Advancement of general knowledge

30.728.729.829.932.530.732.435.3Advancement of industrial technology

5.35.55.55.65.86.46.26.8Agriculture, forestry, fishing

3.03.03.43.64.53.93.94.2Social services

2.31.92.61.21.10.90.81.3Infrastructure development

3.53.73.42.92.93.03.22.7Others

(1) Including the Planning and Budgeting Committee.

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2.5.3 Expenditure of selected government ministries

The expenditure of the Ministry of Economy and Industry on R&D in 2016 amounted to about 64% of the overall expenditure of government ministries on R&D (excluding the Planning and Budgeting Committee), and to 43% of the overall expenditure in that ministry. The expenditure on R&D by this ministry, at current prices, increased by approximately 1.4% in 2016, following an increase of 1% in 2015. The main R&D expenditure was for transfers by the Chief Scientist to manufacturing establishments as well as to the “Magnet” project, which conducts generic R&D, and to technological incubators.

Government transfers to the business sector include gross financing, i.e., without deduction of income from royalties. Income from royalties decreased by 9% in 2016 in current prices, compared to 2015, and amounted to approximately NIS 563 million.

The expenditure of the Ministry of Agriculture and Rural Development on R&D in 2016 amounted to 12% of the total R&D expenditure by government ministries (excluding the Planning and Budgeting Committee). In 2016, as in previous years, this ministry’s share of the expenditure for direct operation of R&D industries was high, and amounted to approximately 80% of intramural expenditures of all government ministries on R&D. The ministry includes the Agricultural Research Organization (Volcani Center), which coordinates and conducts government agricultural research and operates six research institutes that deal with applied infrastructure research in all areas of agriculture, and three agricultural farms. Its researchers serve as scientific directors of several regional R&D stations that conduct applied research and field experiments for the purpose of solving local problems. In 2016, approximately 17% of the ministry’s budget was allocated to the Agricultural Research Organization and to R&D.

The share of expenditure on R&D by the Ministry of Science and Technology5 was approximately 10% of total expenditure of government ministries on R&D in 2016. The total budget for science in this ministry is included under R&D expenditure, due to the special nature of the ministry, whose direct or indirect activities are all related to R&D. The expenses of the ministry include overhead, administration for conducting research, and the products of research financed by the Israel–Germany Research Foundation.

The share of expenditure on R&D by the Ministry of Energy was approximately 3% of the total expenditure of government ministries on R&D.

5 The Ministry of Science and Technology data also include the Ministry of Culture and Sport data.

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TABLE D.- EXPENDITURE OF SELECTED GOVERNMENT MINISTRIES(1)ON FINANCING CIVILIAN R&D2009–2016, NIS MILLION AT CURRENT PRICES

2016*2015*201420132012201120102009Government ministries

7,8857,2036,8956,4746,2575,8025,3915,006TOTAL

2,0832,0531,9442,0451,7911,7551,7771,590

Ministry of Economy and Industry

440423401403414370348331

Ministry of Agriculture and Rural Development

326335372316315244230225

Ministry of Science and Technology(2)

1221181008781918073Ministry of Energy

333378272310244225242226Other ministries

3,5553,5483,3473,0442,9922,7042,2992,028

Planning and Budgeting Committee

(1) Over the years, activities have been transferred from some ministries to others.Therefore, caution should be exercised in analyzing the series.

(2) The Ministry of Science and Technology data also include the Ministry of Culture and Sport data.

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TABLE E.- EXPENDITURE OF SELECTED GOVERNMENT MINISTRIES(1)ON FINANCING CIVILIAN R&D, BY TYPE OF EXPENDITURE2016, PERCENTAGES

Government ministries

Grand total

Intramural expenditure

R&D purchase

Transfers

TOTAL 100.0 12.2 11.2 76.6Ministry of Economy and Industry 64.0 0.3 1.3 83.7

Ministry of Agriculture and Rural Development 12.3 80.1 0.0 3.3

Ministry of Science and Technology(2) 10.1 6.3 0.5 12.1

Ministry of Energy 3.2 10.4 16.6 0.1

Others 10.4 2.9 81.6 0.8(1) Excluding the Planning and Budgeting Committee.(2) The Ministry of Science and Technology data also include the Ministry of Culture

and Sport data.

3. TERMS, DEFINITIONS AND EXPLANATIONS

3.1 Definition of R&D

The definition of R&D used in Israel and in the OECD countries is taken from the Frascati Manual,6 which was published by the Statistical Office of the OECD:

Research and development (R&D) comprise creative work undertaken on a systematic basis in order to increase the stock of knowledge, including knowledge of man, culture and society and the use of knowledge to devise new applications.

The basic criterion for distinguishing R&D from related activities is the presence in R&D of an appreciable element of novelty.

The term R&D covers three activities: basic research, applied research and development.

a. Basic research is experimental or theoretical work undertaken primarily to acquire new knowledge of the underlying foundation of phenomena and observable facts, without any particular application or use in view.

6 6 OECD (2015). The Measurement of Scientific, Technological and Innovation Activities: Frascati Manual, 2015. Guidelines for Collecting and Reporting Data on Research and Experimental Development. Paris: Author.

OECD (1989). The Measurement of Scientific and Technological Activities, R&D Statistics and Output Measurement in the Higher Education Sector: The Frascati Manual, Supplement. Paris: Author.

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b. Applied research is also original investigation undertaken in order to acquire new knowledge. It is, however, directed primarily towards a specific practical aim or objective.

c. Experimental development is systematic work, drawing on existing knowledge gained from research and/or practical experience, which is directed to producing new materials, products or devices, to installing new processes, systems and services, or to improving substantially those already produced or installed.

R&D activities are a part of a wide range of activities, which include Scientific and Technological Activities (STA), as defined by the Statistical Office of UNESCO.7 Scientific and Technological Activities include activities related to the generation, advancement, dissemination, and application of scientific and technical knowledge.

In addition to R&D activities, STA includes scientific and technical education and training activities, as well as scientific and technological services. Scientific and technological services include, among others, activities of scientific libraries and museums, data collection on socio-economic phenomena, testing, standardization and quality control.

The industrialized countries ascribe great importance to R&D activities because of their role in economic growth processes, their influence on the transformation of the industrial structure, and the support they give to promotion of increased competitiveness of producers in local and international markets, etc.

The definitions and classifications in this publication are based on the recommendations in the Frascati Manual of the OECD for measuring expenditure on R&D, so the data on Israel are comparable to those of the OECD countries.

In accordance with the recommendations of the Frascati Manual, the main concept in this publication is the Expenditure on Research and Development. National expenditure on R&D includes expenditure on R&D performed in the country, hence expenditure on R&D funded from abroad was included, but payments made for R&D performed abroad were excluded.

In the estimate of the national expenditure on R&D presented here, defence R&D was excluded. Defence R&D includes all R&D activities for military purposes, irrespective of their contents or secondary civilian applications.

In accordance with the recommendations of the new system of the National Accounts (SNA 2008), R&D output (including operating surplus, excluding export) is registered in the product as an investment. The national expenditure includes the entire expenditure, excluding operating surplus.8

7 See: UNESCO (1978). Recommendations Concerning the International Standardization of Statistics on Science and Technology (The General Conference of the United Nations Educational, Scientific and Cultural Organization meeting in Paris from 24 October to 28 November, 1978, at its twentieth session).(unesco portal).

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The System of National Accounts published by the statistical offices of five international organizations recommends the presentation of a separate estimate for R&D expenditures, in order to enable economic analysts, policy makers and other users of macroeconomic data to apply R&D figures along with other macro-economic indicators.

The value of R&D services output is difficult to measure. The part of R&D sold separately by the establishments has a market price, but this part is relatively small. The main part is R&D used by the companies in the process of producing their products. It is embodied in the value of their sales, and is difficult to separate. Therefore, we calculate the value of R&D that was not sold, as the sum of production expenditure on R&D.

3.2 Classification by Sector

The national expenditure on R&D was classified by sector according to the OECD recommendations, and a matrix was constructed which represents a combined classification by operating sector and financing sector. Financing from abroad for R&D conducted in the different sectors is shown in a separate row.

The units operating and financing R&D in Israel are classified into five sectors:

(a) Business – the Business Sector includes the following industries: Agriculture, Forestry and Fishing; Manufacturing; Electricity Supply; Water Supply, Sewerage and Waste Management; Construction; Wholesale and Retail Trade and Repair of Motor Vehicles; Transportation, Storage, Postal and Courier Activities; Information and Communications; Financial and Insurance Activities; Professional, Scientific and Technical Activities. Including hospitals, which were transferred from the general government sector and from private non-profit institutions.

The business sector includes all establishments, both privately and publicly owned, as well as business companies which are not defined as companies, such as the Public Printer. Not included are general government services, local authorities, non-profit institutions and housing services in owner occupied dwellings.

(b) General government – broadly defined, including government ministries, local authorities, national institutions, the National Insurance Institute and non-profit institutions financed mainly by government. Higher education institutions are considered as a separate sector because of their intensive R&D activity and hospitals were transferred to the business sector.

(c) Higher education institutions – including the following institutions and research establishments associated with them: The Hebrew University, Tel Aviv University, Bar-Ilan University, Haifa University, Ben Gurion University of the Negev, Ariel

8 Central Bureau of Statistics (2013). Press Release – Revisions in the National Accounts in Israel (217/2013), August 11, 2013.

Media Release .

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University, Technion – Israel Institute of Technology, and the Weizmann Institute of Science.

(d) Private Non-Profit Institutions – including institutions which operate on a non-profit basis, and whose main source of financing is not governmental. R&D financing by households, such as donations, is presented together with financing of the business Sector. Sources of R&D funding from abroad are shown separately. Hospitals were transferred to the business sector.

(e) Abroad – comprises all non-resident institutional units that enter into transactions with resident units, or have other economic links with resident units (such as claims by residents on non-residents). Abroad includes certain institutional units that may be physically located within the geographic boundary of a country, for example: embassies, consulates or military bases, as well as international organizations.

3.2.1 Classification by operating sector

In the classification by operating sector, all direct expenses for conducting R&D are taken into account, regardless of the funding source.

Operating expenses include:(a) Current expenditure

Labour costs – Wages and salaries paid to employed persons, including additional labour cost, taxes on wages, deductions for severance pay and pension funds, etc. Government expenditure on R&D includes imputed expenditure on pensions, which reflects the government’s commitment to pay retirement pensions.

Intermediate consumption – The value of non-durable goods and services consumed as inputs in R&D production, including materials, energy, communications, security, maintenance of buildings and equipment, and other current expenditure.

In order to avoid duplication when estimating national expenditure on R&D, expenditure on R&D in the establishment is included, while purchase of R&D performed by other producers is not included, even if it is used as an intermediate input to generate R&D.

Following OECD recommendations for this field, consumption of fixed capital and depreciation of equipment used for R&D activity is not included in current expenditure.

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(b) Gross capital formationExpenditure on buildings, equipment, machinery and vehicles acquired for R&D purposes.

3.2.2 Classification by financing sector

In the classification of R&D expenditure by the financing sector, the following are included: the cost of self-produced and independently financed R&D, the purchase of R&D from resident units, donations, grants and other capital transfers to resident sectors for the purpose of financing R&D.

Government ministries finance R&D in other sectors by means of: direct transfers or subsidies; transfers from R&D endowment funds; contracts of operation.

General government financing for the universities through the Planning and Budgeting Committee is shown separately in the tables and is not included in the financing of the Ministry of Education.

General government transfers to the business sector include gross financing, i.e., without deduction of income from royalties. Income from royalties amounted to NIS 563 million in 2016 at current prices – 9% lower than in 2015.

3.3 Classification by Scientific Field

The statistical units in the Non-Profit Institutions sector are classified by five main scientific fields, in accordance with the recommendations of the Frascati Manual.9

(a) Natural Sciences

(b) Medicine

(c) Social Sciences

(d) Humanities

(e) Other

An institution is classified by scientific field according to the type of the main activity it performs or finances.

3.4 Classification by Objective

Expenditure of government ministries on R&D, classified by objective, is in line with the recommendations of the Frascati Manual:(a) Exploration and exploitation of the earth – R&D related to the exploration of

the Earth's crust and mantle, seas, oceans and atmosphere.

9 OECD (2015). The Measurement of Scientific, Technological and Innovation Activities: Frascati Manual 2015, Guidelines for Collecting and Reporting Data on Research and Experimental Development. Paris: Author.

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(b) Environment – R&D aimed at improving the control of pollution, including the

identification and analysis of the sources of pollution and their causes and all

pollutants, their dispersal in the environment and the effects on humans, species

and the biosphere.

(c) Exploration and exploitation of space – All civil space R&D relating to the

scientific exploration of space, space laboratories, space travel and launch

systems.

(d) Transport and communications and other infrastructures – All R&D relating

to the general planning of land use. Infrastructure and land development and

R&D related to transport systems, telecommunication systems, the construction

and planning of buildings and water supply.

(e) Energy – R&D aimed at improving the production, storage, transportation,

distribution and rational use of all forms of energy.

(f) Industrial production and technology – R&D aimed at improvement of

industrial production and technology, including R&D on industrial products and

their manufacturing processes, except where they form an integral part of the

pursuit of other objectives (e.g. defense, space, energy, agriculture).

(g) Health – R&D aimed at protecting, promoting and restoring human health,

including all aspects of nutrition and food hygiene, medical and surgical treatment.

(h) Agriculture – R&D aimed at the promotion of agriculture, forestry, fisheries and

foodstuff production. Furthering knowledge on the impact of agriculture and

forestry activities on the environment.

(i) Education – R&D aimed at supporting general or special education, including

training, pedagogy and didactics.

(j) Culture, recreation, religion and mass media – R&D aimed at improving the

understanding of social phenomena related to cultural activities, religion and

leisure activities so as to define their impact on life in society.

(k) Political and social systems, structures and processes – R&D aimed at

improving the understanding of and supporting the political structure of society; public

administration issues and economic policy; regional studies and multi-level

governance; social change, social processes and social conflicts.

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(l) General advancement of knowledge

(1) R&D financed from general university funds – All R&D financed from general purpose grants from the Ministry of Education, through GUF.

(2) R&D financed from sources other than GUF – Budgets allocations that are earmarked for R&D but cannot be attributed to an objective and are financed by sources other than GUF.

3.5 Administrative Classification

The expenditure of government ministries is also presented by an administrative classification – by selected ministries (Ministry of Economy and Industry; Ministry of Agriculture and Rural Development; Ministry of Science and Technology; Ministry of Energy; and other ministries).

3.6 Classification by Industry

The expenditure of manufacturing industries was classified by divisions, in accordance with the Standard Industrial Classification of All Economic Activities 2011.10

10 See: Central Bureau of Statistics (2012). Standard Industrial Classification of All Economic Activities 2011. Technical Publication No. 80. Jerusalem: Author.

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4. METHODS AND SOURCESMethods and Sources for Israel’s Estimates of R&D

Estimates of national expenditure on R&D in Israel include only civilian R&D, and are based on surveys in the following sectors and sub-sectors.

4.1 Business Sector

The estimates are based on R&D Surveys in Manufacturing for the years 1989–201511 (see questionnaire on companies enclosed as an example in Appendix 2).

As of 2008, the surveys include electricity and water, communications and business services industries as well.

Since 1995, the Central Bureau of Statistics has been conducting an annual survey of software companies. In 1997 the survey coverage has been expanded and provides a detailed definition of R&D in software companies.

The business sector includes R&D centres of foreign companies, as well as technological incubators, which help out small businesses during their initial stages of activity, and contribute toward the absorption of new immigrant scientists.

The 1989 survey was based on a sample list of establishments that employ 50 or more persons who engage in R&D activities.

In 1990, an expanded survey was conducted among all manufacturing establishments that employ five or more persons who engage in R&D activities. The establishments in this survey were selected according to the sample of the Manufacturing, Mining and Quarrying survey. The findings of the 1990 survey were used to estimate the R&D activities of establishments that were not covered by the 1989 survey.

These surveys exclude defence system manufacturing establishments that engage in defence R&D activities.

4.2 General Government Sector

4.2.1 Government ministries

Estimates of expenditure on R&D in government ministries were based primarily on locating and collecting the relevant items in the financial reports compiled by the Accountant General on the performance of the current and development budgets. Additional sources were annual reports of the State Comptroller and the explanatory notes to the ministries’ budgets. The reports obtained from the ministries on their budget performance were at the most expanded level (8 items). Nevertheless, at this level of specification, only some of the expenditures on R&D in government ministries were presented as separate items.

11 Central Bureau of Statistics (in preparation). Business Research and Development 2015 (Special Publication No. 1716). Jerusalem: Author.

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A list was prepared of all budget items that include or may include expenditure on current production of R&D, or financing of R&D activities performed by other resident sectors. On the basis of this list, information was collected through interviews with the accountants or officials in charge of implementing the specific budget items. Several examples were given and the R&D boundaries were clarified. For example, it was clarified that statistical data collection is defined as R&D only if it is conducted as part of a specific research project or development plan.

As of 2001, in addition to the financial reports compiled by the Accountant General, data on R&D in government ministries are based on a questionnaire (see Appendix 3). In this questionnaire, the accountants or other staff members responsible for R&D were requested to fill in the data on R&D expenditure in their ministries at the highest level of specification, by the relevant budget items which were categorized as follows: intramural expenditure (including compensation of employees, current expenditure and capital formation), type of research (basic, applied and experimental), R&D purchase, current transfers, capital transfers and income. In addition to expenditure and income data, respondents were asked to indicate the number of employees in the ministry that engage in R&D and the number of their posts.

The estimates are updated in accordance with structural changes in government ministries.

4.2.2 Local authorities and national institutions

These estimates were based on financial reports of the national institutions (the Jewish Agency for Israel, Jewish National Fund, Keren HaYesod and the World Zionist Organization) and the local authorities. Additional information was gathered in interviews with treasury officials.4.2.3 Public non-profit institutions

Data on these institutions were obtained through a survey conducted by the Central Bureau of Statistics, which included all the institutions defined as “non-profit institutions” by the VAT division in the Ministry of Finance. They were collected through financial reports and interviews with personnel in charge.

4.3 Private non-profit institutions sector

Data on these institutions were obtained from the same survey described in Section 4.2.3 above, which also includes the private non-profit institutions.

4.4 Higher education sectorData were taken from a survey conducted by the Central Bureau of Statistics, based on the universities' financial reports and administrative data (source: Education and Teaching Stuff Department, the Central Bureau of Statistics).In order to estimate the expenditure on conducting R&D activities in the higher education sector, three main funding sources were investigated.

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4.4.1 Current budgetR&D is an integral part of the academic activities in higher education institutions. It is difficult to separate R&D from educational activities, and R&D expenditure is not shown separately in the current budget. Therefore, the Central Bureau of Statistics conducted a survey in 2009, which examines how the universities’ faculties distribute their work time between R&D and teaching. The results are used to estimate the expenditure on R&D, which is financed through the current budget.Following the Frascati Manual’s recommendation, tuition fees paid by households as well as donations, which are not designated for a specific research activity, are considered the university’s self-financing.

4.4.2 Specially financed research

Funding for specific research is provided by households and institutions in Israel and abroad, in the form of research grants allocated by foundations, individual donations and research commissioned by establishments and government ministries. Separate accounts are kept for R&D activities financed by these sources, and data on them are collected from R&D authorities and accountants of the institutions.

4.4.3 Internal institutional research funds

Each of the higher education institutions has one fund or more to finance research by faculty. These funds are separately financed by or reimbursed from general expenses (overhead) on research projects funds by external bodies. Data on R&D financed by these funds are collected from the funds’ management.

4.5 Preliminary Estimates

4.5.1 The business sector

For 2016, preliminary estimates have been calculated, based on revenue and employment data in establishments and companies in which R&D is performed, together with data from Labour Force Surveys and the National Insurance Institute.

For Transportation, Storage, Postal and Courier Activities (Section H) and other industries that were not surveyed before 2009 (paragraph 4.1), an imputation by industry was carried out, based on data from Labour Force Surveys and National Insurance Institute on personnel employed in R&D.

4.5.2 The general government sector

The data for 2016 are based on final reports provided by government ministries on their budget performance in 2016, as well as on a questionnaire for 2016 filled out in the ministries. As for the public non-profit institutions, the most recent survey for which reports were obtained was conducted in 2014. Estimates for 2015–2016 are based on the survey for that period as well as on extrapolation of data based on wage and employment statistics reported to the National Insurance Institute.

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4.5.3 Private non-profit institutions sector

The estimates are the same ones of the public non-profit institutions specified in paragraph 4.5.2, above. As mentioned, the survey includes public as well as private non-profit institutions.

4.5.4 The higher education sector

A preliminary estimate for 2015–2016 was computed according to the budgets of the universities.

4.6 Other Adjustments

Gross capital formation for R&D in universities was estimated on the basis of data from the Planning and Budgeting Committee of the Council for Higher Education, and from the Central Bureau of Statistics survey on capital formation in universities.

Data obtained for an academic year (September–August) were adjusted to calendar year by using specific price indices for each type of expenditure.

4.7 Estimates at Constant Prices

The annual changes in the national expenditure on R&D and its main components, at constant prices, were calculated separately for each sector (business, government, higher-education and non-profit institutions), and in most cases, for each type of expenditure.

(a) In the general government, in higher education institutions, and in non-profit institutions, the change in labour cost was estimated by using the employee job average wage index for the specific sector. Current expenditures for the purchase of goods and services were calculated by deducting the estimates, at current prices, from a price index that considers the special composition of the expenditures made by these institutions; capital formation in buildings was assessed by the Price Index of Input in Residential Building; and capital formation in equipment was estimated by price changes in the output of industries that manufacture such equipment and price changes in imported equipment.

(b) In the business sector, whose data are based mainly on the Manufacturing Survey until 1995, estimates were calculated at constant prices, by using the Consumer Price Index. Since 1996, estimates are calculated at constant prices as in other sectors.

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Sources and Methods for the International Comparison

4.8 Sources

Data on R&D for OECD countries were taken from an OECD publication.12 For countries with no detailed data for the years 2015 and 2016, data for the nearest year were taken instead.

4.9 Methods

4.9.1 Purchasing Power Parity (PPP)

An international comparison project was conducted for 35 OECD countries (including Israel), and countries that are not members of the organization but participated in the comparative project. The project was coordinated jointly by the OECD and Eurostat. The aim of the project was to conduct international comparisons of the GDP and of the main items of expenditure per capita. To conduct the project, special exchange rates were constructed, known as “Purchasing Power Parity” (PPP). Based on these values, it is possible to deduct the differences between countries. The value of the GDP based on the PPP is in constant prices, and variations in the level of the GDP in different countries reflect only differences in amounts of goods and services.

To prepare the PPP, data on prices of a wide variety of goods and services (approximately 2,500 items) were collected, according to specific definitions that were formulated for all of the countries that participated in the project. The international comparison of expenditure on R&D was compiled considering the purchasing power of the products, in the absence of a special PPP for the R&D expenditure basket.

4.9.2 Averages for financing and performance

In the international comparison tables, the composition of expenditure is provided for OECD countries, and for each individual country the composition of expenditure on R&D is provided by operating and financing sectors.

4.9.3 Civilian and general R&D

For Israel, civilian expenditure on R&D is presented, whereas total expenditure on R&D, including defence R&D, is presented for some other countries. The share of defence R&D expenses in the United States, the United Kingdom and Korea is higher than its share in the other countries.

The inclusion of defence R&D in Israel’s expenditure would probably increase the relative share of the business and general government sectors in R&D and consequently diminish the relative proportion of other sectors.12 See: OECD (2017). Main Science and Technology Indicators (MSTI). 2nd ed. Paris:

Author

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5. RELIABILITY OF THE DATAWhen analyzing R&D expenditure data, it is important to remember that the statistics of R&D are less comprehensive and reliable than in other fields. There are no separate accounts of expenditure on R&D in most institutions and establishments, and R&D expenditure is usually mixed with other cost components of producing goods and services (see discussion on problems of measuring in Appendix 1). Even when separate data on R&D are available, the definition of R&D in establishments is not uniform, and depends on subjective considerations. A similar problem exists in other areas, although apparently on a smaller scale. This problem exists particularly in higher education institutions, where education and research activity are combined.

When comparing the international data of R&D it should be taken into account that besides the above-mentioned problems of measuring, there are also differences between countries which make comparison more difficult:

(a) The level of development of statistics in different countries is not uniform and there are differences in the coverage and quality of statistics.

(b) Differences in institutional structure in the different countries affect the composition of R&D activity by operating sector and financing sector. For example, similar operating units such as higher education institutions are owned by government in some countries and by private non-profit institutions in others.

The discrepancy between the price levels and relative prices of the components of expenditure on R&D is only partially solved by comparing the expenditure on R&D in terms of purchasing power, which was calculated for all goods and services within the GDP but not for expenditure on R&D.

6. REVISIONS AND IMPROVEMENT OF THE ESTIMATESThe estimates published in National Expenditure on Civilian Research and Development 1989-201513 were revised following receipt of detailed information and updated statistics.

13 See: Central Bureau of Statistics (2016). National Expenditure on Civilian Research and Development 1989–2015. Publication No. 1661. Jerusalem: Author.

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