Under-reporting of R & D in small firms: The impact on international R & Dcomparisons

There is a widely recognised tendency for conventional measures of R&D acti vity to under-estimate the R&D investments of small companies. This arises due to small firms' emphasis on developmental rather than fundamental resea rch, and because this activity is often informally organised. International survey evidence suggests a greater degree of formality in the organisation of R&D in German small firms. This reduces the likely degree of under-esti mation of German small firms' R&D activity relative to that in the U.K. As a result, aggregate R&D figures may be under-estimating the true level by 1 3.9 per cent in the U.K. and 2.4 per cent in Germany. This is equivalent to around half of the historical difference between aggregate levels of busin ess R&D in the U.K. and Germany.