Intangible Capital and Growth in Advanced Economies: Measurement Methods and Comparative Results
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Intangible capital plays a significant role in economic growth for both the EU and US, with data showing intangibles account for 20-25% of market sector labor productivity growth in Europe.
"....This paper has set out methods, presented data and analyzed investment and sources of economic growth including intangibles for the European Union and the United States. Our data for investment cover the EU27 member countries and the US in 1995-2005, and for the EU15 economies, the US plus Czech Republic and Slovenia we add the years 2006-2009. Our growth accounting covered 14 EU countries plus the US. Despite the emerging parity in the contribution of intangible capital to European growth, for some countries in Europe, this stands against a backdrop of smaller rates of growth of labor productivity than typically experienced in the UK and US. And in most cases the shortfall can be attributed to lower multifactor productivity growth. This could result from structural factors orthogonal to intangible capital per se, such as a greater ability to 37 obtain financing for innovation in certain countries. It also could be associated with returns to scale or intangible capital deepening itself, as suggested by Figure 9, which shows a positive association between MFP growth and the contribution of intangible capital deepening (and one that is much stronger than that for tangible capital, figure 10).Figure 9 - Intangible Capital and Spillover Effects
We are, of course, conditioned to think in terms of spillovers from R&D because the topic is well researched, but spillovers occur whenever an investment in innovation by a firm or an industry creates a platform that spurs follow on innovations and new or expanded markets (think “apps” for mobile phones, or the “clusters” that form around a successful business). To better understand the spillovers that are suggested by Figure 5 suggests deeper study of the returns to specific intangible assets and channels through which the returns accrue. With the advent of the IT revolution and Internet technology, the spillover channels may be quite different than the “distance” models formulated and studied by Zvi Griliches some time ago (see Griliches 1992 for a review).
A deeper dive into such topics is the subject of a forthcoming companion paper (Corrado, Haskel, JonaLasinio 2012) 38 Figure 10 - Tangible Capital and Spillover Effects The harmonized estimates of intangible capital for Europe introduced in this paper are preliminary, but key advances were made that substantially enhance their usefulness in policy discussions. The new growth accounting results are the broadest available results for Europe to date. Although Europe invests less in intangibles than the US, intangibles account still account for between 1/5 and 1/4 of the average growth of market sector labor productivity in Europe. In addition to improved measurement, advanced countries need to build a deeper understanding of the returns to intangible assets and of the role intangibles play in the national and international innovation diffusion process..."
Corrado, Carol, Jonathan Haskel, Cecilia Jona-Lasinio, and Massimiliano Iommi. July 2012. “Intangible Capital and Growth in Advanced Economies: Measurement Methods and Comparative Results.” Institute for the Study of Labor (IZA).https://www.conference-board.org/pdf_free/workingpapers/EPWP%201203.pdf