Productivity and Growth in UK Industries: An Intangible Investment Approach^*

Abstract

This paper tries to calculate some facts for the "knowledge economy". Building on the work of Corrado, Hulten and Sichel (CHS, 2005,9), using new data sets and a new micro survey, we (1) document UK intangible investment and (2) see how it contributes to economic growth. Regarding investment in knowledge/intangibles, we find (a) this is now greater than tangible investment at, in 2008, £141bn and £104bn respectively; (b) that R&D is about 11% of total intangible investment, software 15%, design 17%, and training and organizational capital 22%; (d) the most intangible-intensive industry is manufacturing (intangible investment is 20% of value added) and (e) treating intangible expenditure as investment raises market sector value added growth in the 1990s due to the ICT investment boom, but slightly reduces it in the 2000s. Regarding the contribution to growth, for 2000-08, (a) intangible capital deepening accounts for 23% of labour productivity growth, against computer hardware (12%) and TFP (40%); (b) adding intangibles to growth accounting lowers TFP growth by about 15% (c) capitalising R&D adds 0.03% to input growth and reduces ΔlnTFP by 0.03% and (d) manufacturing accounts for just over 40% of intangible capital deepening plus TFP.

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