We live in an era of innovation. Innovations have improved consumer welfare by introducing new goods and services, increasing the quality of existing goods, decreasing the costs of existing goods, and providing a great amount of information about available goods. Innovations have improved producers’ efficiency by changing organizational structures. Innovation, however, is largely ignored in national accounts and corporate financial report because measuring innovation is hard. Indeed, innovation is one of the many assets that are hard to measure and thus are ignored because they are “intangible”. Examples of those intangible assets are software, databases, brand equity and human capital.
Intangible capital include a wide array of assets, including software, databases, R&D, mineral exploration and valuation, copyright and licenses, new products in financial industry, new architectural and engineering designs, brand equity, firm-specific human capital and organizational capital. Economists find that developed countries invest substantially in intangible assets. In the US, the private sector invested 12.1% of GDP in intangible assets in 2003 (Corrado, Hulten and Sichel, 2005). In the UK, the private sector invested 10.1% of GDP on intangibles in 2004 (Marrano and Haskel, 2006). In Finland, the private sector invested 9.1% of GDP in intangible assets (Jalava, Aulin-Ahmavaara and Alanen, 2007). The Netherlands invested 8.3% of GDP between 2001 and 2004 (van Rooijen-Horsten, van den Bergen and Tanriseven, 2008), and Japan invested 7.5% of GDP from 1995 to 2002 (Fukao, Hamagata, Miyagawa and Tonogi, 2007).
Several of the studies above find that intangible assets promote labor productivity. In the US, intangible assets contributed to 0.4 percentage points of the annual growth of labor productivity on average from 1973 to 1995, which increased to 0.8 percentage points from 1995 to 2003. In the UK, Intangible assets increased labor productivity by an average of 0.4 percentage points per year from 1979 to 1995, which increased to 0.6 percentage points per year from 1995 to 2003 (MHW, 2007). In Finland intangible assets increased labor productivity by 0.6 percentage points annually on average from 1995 to 2000, and increased labor productivity by 0.9 percentage points annually on average from 2000 to 2005 (Jalava, Aulin-Ahmavaara and Alanen, 2007).
In this paper, we use the same methodology as CHS (2005) and Morrano, Haskel and Wallis (2007) to measure how much Germany, France, Italy and Spain invested in intangible assets in 2004. We use a wide range of data sources including national accounts, surveys provided by statistical offices, surveys provided by trade associations and corporate financial reports. We estimate that Germany, France, Italy and Spain respectively invested 7.1%, 7.8%, 5.2% and 5.2% of GDP in intangible assets in the market sector in 2004.
From 1995 to 2003, intangible assets contributed to 0.6 percentage points of the annual growth of labor productivity in France and Germany, followed by Italy (0.4 percentage points) and Spain (0.2 percentage points). We chose the period from 1995 to 2003, to be consistent with CHS (2006) and MHW (2007). We also carry out growth accounting for 1995-2000 and 2000-2004 for Germany, France, Italy and Spain. The growth rate of labor productivity was higher in the first period, and was lower in the second period. The contribution of intangible assets decreased from the first to the second period.
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Intangible Capital and Growth an International Comparison
