Intangible investment in the EU and US before and since the Great Recession and its contribution to productivity growth

Abstract

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.

Entry Barriers, Competition, and Technology Adoption

“…The model generates a value of 1.55% for the adoption‐cost‐to‐GDP ratio (Adoption/GDP) in the poor economy, which is 14% of the level in the United States. This result is qualitatively consistent with that of Corrado et al ().…”

“…The latter is assumed to be the frontier technology. I borrow the ratio of intangible investment to GDP from Corrado et al (), which construct this ratio for a set of advanced economies and find a ratio of 11% for the United States.…”

“…Estimates of the ratio of intangible investment to GDP are not available for poor countries. Corrado et al () estimate this ratio for 28 European countries and the United States. The estimate tends to be smaller for poorer European countries.…”

The Impact of Investment in Knowledge-Based Capital on Productivity: Firm-Level Evidence from Ireland

“…Existing evidence based on these harmonised data sets indicates that investments in KBC are sizeable and they have increased over time (Corrado et al 2013(Corrado et al , 2016OECD 2013). In recent years, in a number of advanced economies, notably the US, the UK, and Sweden private business investments in KBC have been larger than investment in tangible (physical) capital (Corrado, Hulten and Sichel 2009;Dal Borgo et al 2012;Corrado et al 2016). Another common feature across advanced economies is the large and growing share of investment in non-R&D assets.…”

“…Corrado et al (2016) estimated that over the period 2000-2013, the contribution of intangible capital deepening to the annual labour productivity 1 Karlsson et al (2010) reviews the international evidence on the role of ICT as a new general purpose technology and complementary investments needed to exploit the growth opportunities ICT offer. 2 Throughout this paper we use the terms knowledge-based capital (KBC) and intangible assets interchangeably.…”