Knowledge creation is a key driver of growth in modern economies. The creation of knowledge is often comparable to the accumulation of tangible capital: In the current period, investments are made in order to yield rents not only in the present but also in future years. Economists have been investigating the effects of investments in knowledge for a long time. However, only in recent years were efforts made to study intangible capital in a way consistent with the national accounts (NA). Intangible capital includes expenditures on research and development (R&D), firm-specific human capital, expenditures on new financial products, new architectural and engineering designs, expenditures on market research, advertising expenditures, own-account development of organizational structures and purchased organizational structures. In contrast to investments in both information and communication technologies (ICT) and Non-ICT investments such as machinery or transport equipment, the intangible investments mentioned above are not currently included in the national accounts. However, from 2014, expenditures on R&D will be part of the national accounts.

The combined efforts of multiple international projects have already established a harmonized database of intangible capital at the business sector level. This database is publicly available on the INTAN-Invest platform for the period 1995 to 2007. Using these data, we are able to calculate sectoral level data for 11 industries of 10 EU countries for the first time. With this sectoral breakdown we find that the share of intangible investment in value added is higher in the goods producing sector than in the service sector.

In order to evaluate the productivity effects of intangible capital, we use two different methodologies. First, in a growth accounting framework we show that intangibles are key drivers for productivity growth particularly in the manufacturing and financial intermediation sectors. The productivity growth in manufacturing is largely driven by expenditures on R&D. In an international comparison there are nevertheless remarkable differences. In the UK we see a large positive contribution of intangibles to labor productivity growth in the business services sector. Second, an econometric analysis relaxes the growth accounting assumption that all input factors earn their marginal product. Using this alternative methodology, we see output elasticities of intangible capital ranging from 0.1 to 0.2. The output elasticity of intangibles is the percentage increase in output for a one percent increase in intangible capital input. The results are larger than the factor compensation share of intangible capital. This could be an indicator of unmeasured complementarities (e.g. with ICT) or spillovers of intangible capital. Our calculated elasticities of intangible capital are of a smaller magnitude than those found in previous studies that are based on total business sector data.

Keywords

Intangible Assets, Labor Productivity, Growth Accounting, Panel Regressions