and Daniel SichelFederal Reserve Board, Washington DC Published macroeconomic data traditionally exclude most intangible investment from measured GDP. This situation is beginning to change, but our estimates suggest that as much as $800 billion is still excluded from U.S. published data (as of 2003), and that this leads to the exclusion of more than $3 trillion of business intangible capital stock. To assess the importance of this omission, we add intangible capital to the standard sources-of-growth framework used by the BLS, and find that the inclusion of our list of intangible assets makes a significant difference in the observed patterns of U.S. economic growth. The rate of change of output per worker increases more rapidly when intangibles are counted as capital, and capital deepening becomes the unambiguously dominant source of growth in labor productivity. The role of multifactor productivity is correspondingly diminished, and labor's income share is found to have decreased significantly over the last 50 years. Introduction and BackgroundThe revolution in information technology is apparent in the profusion of new products available in the marketplace (goods with the acronyms PCs, PDAs, ATMs, wi-fi), as well as items like the internet, cell phones, and e-mail. These innovations are part of a broader technological revolution based on the discovery of the semiconductor, often called the "IT revolution." However, while its effects are apparent in the marketplace, its manifestation in the macroeconomic statistics on growth has been slow to materialize. Writing in 1987, Robert Solow famously remarked that "you see the computer revolution everywhere except in the productivity data" (Solow, 1987). Some ten years later, Alan Greenspan observed that the negative trends in measured productivity observed in many services industries seemed inconsistent with the fact that they ranked among the top computer-using 1 Greenspan also questioned the accuracy of the consumer price index, in part because of its failure to adequately account for the new or superior goods made possible by the IT revolution. 2 The IT revolution began to appear in the productivity data in the mid-1990s. This pickup has been linked to investment in IT capital in a series of papers (Jorgenson and Stiroh, 2000;Oliner andSichel, 2000, 2002;Jorgenson et al., 2002;Stiroh, 2002), all of which estimate the contribution of IT capital to output growth within the Solow-Jorgenson-Griliches sources-of-growth (SOG) framework. However, the productivity pickup did not remove all suspicion about the ability of official data to accurately capture the factors that affect U.S. economic growth. Both firm-level and national income accounting practice have historically treated expenditure on intangible inputs such as software and R&D as an intermediate expense and not as an investment that is part of GDP. The exclusion of intangibles obscures the role of many factors at the center of the innovation process that have, according to available evidence, played an importan...

Business outlays on intangible assets are usually expensed in economic and financial accounts. Following Hulten (1979), this paper develops an intertemporal framework for measuring capital in which consumer utility maximization governs the expenditures that are current consumption versus those that are capital investment. This framework suggests that any business outlay that is intended to increase future rather than current consumption should be treated as capital investment. Applying this principle to newly developed estimates of business spending on intangibles, we find that, by about the mid-1990s, business investment in intangible capital was as large as business investment in traditional, tangible capital. Relative to official measures, our framework portrays the U.S. economy as having had higher gross private saving and, under plausible assumptions, fractionally higher average annual rates of change in real output and labor productivity from 1995 to 2002.

Published macroeconomic data traditionally exclude most intangible investment from measured GDP. This situation is beginning to change, but our estimates suggest that as much as $800 billion is still excluded from U.S. published data (as of 2003), and that this leads to the exclusion of more than $3 trillion of business intangible capital stock. To assess the importance of this omission, we add capital to the standard sources-of-growth framework used by the BLS, and find that the inclusion of our list of intangible assets makes a significant difference in the observed patterns of U.S. economic growth. The rate of change of output per worker increases more rapidly when intangibles are counted as capital, and capital deepening becomes the unambiguously dominant source of growth in labor productivity. The role of multifactor productivity is correspondingly diminished, and labor's income share is found to have decreased significantly over the last 50 years.

Business outlays on intangible assets are usually expensed in economic and financial accounts. Following Hulten (1979), this paper develops an intertemporal framework for measuring capital in which consumer utility maximization governs the expenditures that are current consumption versus those that are capital investment. This framework suggests that any business outlay that is intended to increase future rather than current consumption should be treated as capital investment. Applying this principle to newly developed estimates of business spending on intangibles, we find that, by about the mid-1990s, business investment in intangible capital was as large as business investment in traditional, tangible capital. Relative to official measures, our framework portrays the U.S. economy as having had higher gross private saving and, under plausible assumptions, fractionally higher average annual rates of change in real output and labor productivity from 1995 to 2002.

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This paper uses a new cross-country cross-industry dataset on investment in tangible and intangible assets for 18 European countries and the US. We set out a framework for measuring intangible investment and capital stocks and their effect on output, inputs and total factor productivity (TFP). The analysis provides evidence on the diffusion of intangible investment across Europe and the US over the years [2000][2001][2002][2003][2004][2005][2006][2007][2008][2009][2010][2011][2012][2013] and offers growth accounting evidence before and after the Great Recession in 2008-2009. Our major findings are the following. First, tangible investment fell massively during the Great Recession and has hardly recovered, whereas intangible investment has been relatively resilient and recovered fast in the US but lagged behind in the EU. Second, the sources of growth analysis including only national account intangibles (software, R&D, mineral exploration and artistic originals) suggest that capital deepening is the main driver of growth, with tangibles and intangibles accounting for 80% and 20% in the EU, respectively, while both account for 50% in the US, over 2000-2013. Extending the asset boundary to the intangible assets not included in the national accounts (Corrado, Hulten and Sichel, 2005) makes capital deepening increase. The contribution of tangibles is reduced both in the EU and the US (60% and 40%, respectively) while intangibles account for a larger share (40% in EU and 60% in the US). Then, our analysis shows that since the Great Recession, the slowdown in labour productivity growth has been driven by a decline in TFP growth with relatively a minor role for tangible and intangible capital. Finally, we document a significant correlation between stricter employment protection rules and less government investment in R&D, and a lower ratio of intangible to tangible investment.

This paper looks at the channels through which intangible assets affect productivity growth. The econometric analysis exploits a new data set on intangible investment (INTAN‐Invest) in conjunction with EUKLEMS productivity estimates for 10 EU member states from 1998 to 2007. We find that (a) the output elasticity of intangible capital depends upon ICT intensity, consistent with complementarities between ICT and intangible capital; (b) non‐R&D intangible capital has a higher estimated output elasticity than its factor share, as does (c) an index of labour composition. The last two findings are consistent with growth spillovers from investments in knowledge‐based/intangible capital and skills.

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