intangibles and industry productivity growth: the eu economies

Intangibles and industry productivity growth:evidence from the European economies

C. Jona-LasinioISTAT and LUISS Lab

Rome, Italy

Universitat Politecnica de Valencia

22 September 2014, Valencia

C. Jona-Lasinio 1 / 32

Introduction

• Background literature• Extended view of the sources of growth

• Complementary relations and productivity growth• Empirical evidence for EU countries-industries• New policy challenges


Background literature I

• ICT is traditionally described as a general purpose technology(Bresnahan and Trajtenberg,1995) economically beneficialbecause it facilitates complementary innovations that in turn leadto productivity increases (Brynjolfsson and Hitt (2000)).

• But the causal relationship between ICT adoption andproductivity growth is complex and not yet fully explored.

• Microeconomic evidence demonstrates that the link fromfirm-level ICT adoption to productivity growth is composite,emphasysing for example the relevance of co-investments intraining and organizational change, to generate competitiveadvantage (e.g., Bresnahan, Brynjolfsson, and Hitt, 2002;Brynjolfsson, Hitt, and Yang, 2002)).


Background literature II

• Macroeconomic evidence on the joint/disjoint contribution of ICTand intangibles to industry productivity growth is still scant,mainly because of lack of industry data on intangibles.

• Some macroeconomic productivity studies have nonethelesssuggested that the returns to ICT and productivity growth arehigher once proxies for intangibles are included, (e.g., Basu,Fernald, Oulton, Srinivasan (2004) and Acraya and Basu, (2010)).

• Other papers have explored directly the linkage between ICT andR&D but with differing results (Cerquera and Klein, (2008);Polder et al., (2009); Hall et al (2012)).


Background literature III

• Intangible capital has emerged as a new relevant source ofproductivity growth in the U.S. (Corrado, Hulten and Sichel,2005, 2009) and in the European economies (Corrado, Haskel,Jona-Lasinio, Iommi, 2012 and 2014a).

• Corrado, Haskel, Jona-Lasinio (2014), found that in a productionfunction the estimated output elasticities of ICT capital arereduced when intangibles are introduced, suggesting that, asconjectured in much of the pre-intangible data literature, returnsto ICT depend crucially on the presence of unmeasurableintangibles.


R&D and Non-R&D Intangibles

Computerized Information

Innovative Property

Economic Competencies

•  Software •  Databases

•  R&D •  Mineral exploration •  Entertainment and artistic originals •  Design and other new product development costs

•  Branding (mkt. research and long-lived advertising) •  Firm-specific human capital (training) •  Organizational capital (business process investment)

Broad&category&&&&&Type&of&Investment&&&&&&&&&&&&&&&&&

The$CHS$framework$

Non-R&D intangibles: what are they?


Broaden our perspective for productivity analysis:spillovers and complementarities

PRODUCTIVITY

ICT

Non R&D INTG

R&D

INNOVATION


Extended framework

• Besides the direct growth contribution of each single capital asset(solid blue arrows) there are relevant synergies between them(dashed green arrows) possibly affecting productivity growth:• Complementarities• Spillover effects

• Are the spillovers (CHJ, 2014) the product of knowledge diffusionor complementarity with ICT (or both)?


Empirical findings III

• Based on an econometric analysis of a 10 country, 10 yearKLEMS sample of productivity growth in the EU, Corrado, Haskeland Jona-Lasinio (2014) found:

• Productivity in ICT-intensive industries is stronger in countrieswith relatively fast-growing intangible capital, suggestingcomplementarity between ICT and intangible capital

• Non-R&D intangible capital generates productivity spillovers


ICT and Intangible capital complementarities

AUT

GER

DNK

ESP

FIN

FRA

ITA

NLD

SWE

UK

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.1 .2 .3 .4 .5Contribution of ICT Capital Growth per Hour

Note: Scales denote percentage points.

Contributions of Intangible and ICT Capital Growth per Hour in 10 EU Countries 1998-2007


Spillovers

AUT

GER

DNK

ESP

FIN

FRA

ITA

NLDSWEUK

-10

12

3T

FP

Gro

wth

1 2 3 4 5Non-ICT Capital Growth


TFP Growth and Non-ICT Capital Growth in 10 EU Countries 1998-2007

AUT

GER

DNK

ESP

FIN

FRA

ITA

NLDSWE UK

-10

12

3T

FP

Gro

wth

8 10 12 14 16ICT (incl software) Capital Growth


TFP Growth and ICT Capital Growth in 10 EU Countries 1998-2007

AUT

GER

DNK

ESP

FIN

FRA

ITA

NLDSWEUK

-10

12

3T

FP

Gro

wth

2 3 4 5 6Intangible (excl software) Capital Growth


TFP Growth and Intangible Capital Growth in 10 EU Countries 1998-2007

AUT

GER

DNK

ESP

FIN

FRA

ITA

NLDSWEUK

-10

12

3T

FP

Gro

wth

0 1 2 3 4Labour Services Growth


TFP Growth and Labour Services Growth in 10 EU Countries 1998-2007

TFP Growth in 10 EU Countries 1998-2007


Intangible investments (chain linked volumes):compounded average rates of growth 1995-2010

0.00#

1.00#

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3.00#

4.00#

5.00#

6.00#

7.00#

8.00#

9.00#

10.00# Manufacturing+ Services+


Diffusion of ICT, R&D and Non-R&D intangibles capital inEU countries

• Intangible capital accumulation more dynamic in services thanmanufacturing (excluding Finland)

• What about the diffusion of ICT and Intangible assets across EUcountries-industries?• ..and within intangible assets are there relevant differencesacross manufacturing and services?


R&D intensity: average values 1995-2010

Map 1 – Value added share of R&D: Manufacturing and Services (Percentage values)

Source: EUROSTAT

[1.03,2.16](2.16,3.29](3.29,4.42](4.42,5.54](5.54,6.67](6.67,7.80](7.80,8.92](8.92,10.05](10.05,11.18]

VA share of R&D - Manufacturing (Average shares 1995-2010)

[0.26,0.41](0.41,0.55](0.55,0.70](0.70,0.85](0.85,1.00](1.00,1.15](1.15,1.30](1.30,1.44](1.44,1.59]

VA share of R&D - Services (Average shares 1995-2010)


Non-R&D Intangible intensity: average values 1995-2010

Map 2 – Value added share of Non-R&D intangibles: Manufacturing and Services (Percentage values)

Source: INTAN –Invest

[3.72,4.41](4.41,5.11](5.11,5.81](5.81,6.51](6.51,7.21](7.21,7.91](7.91,8.61](8.61,9.31](9.31,10.01]

VA share of Non R&D Intangibles - Manufacturing (Average shares 1995-2010)

[4.90,5.80](5.80,6.71](6.71,7.62](7.62,8.52](8.52,9.43](9.43,10.33](10.33,11.24](11.24,12.15](12.15,13.05]

VA share of Non R&D Intangibles - Services (Average shares 1995-2010)


ICT intensity: average values 1995-2010

Map 3 – Value added share of ICT: Manufacturing and Services

(Percentage values)

Source: EUKLEMS

[0.40,0.77](0.77,1.13](1.13,1.50](1.50,1.86](1.86,2.23](2.23,2.59](2.59,2.96](2.96,3.33](3.33,3.69]

VA share of ICT - Manufacturing (Average shares 1995-2010)

[1.32,2.02](2.02,2.72](2.72,3.41](3.41,4.11](4.11,4.81](4.81,5.51](5.51,6.21](6.21,6.91](6.91,7.60]

VA share of ICT - Services (Average shares 1995-2010)


Stylised facts

• R&D, Non-R&D and ICT average intensities:• Broad differences between Northern and Southern Europe• Northern countries relatively more intangible and ICTintensive than Southern countries

• Differences are maintained across Manufacturing and Services• Services are more intensive in Non-R&D Intangibles and ICTthan manufacturing

• Manufacturing is more R&D intensive than services


Extended Growth Accounting Model

European countries:• AT, FI, FR, DE, ES, IT, NL, UK

Industries:• Agriculture, Mining, Manufacturing, Utilities, Construction,Trade, Financial services, Other services

Asset categories and sub-categories:• Tangible Non-ICT, ICT, R&D, and Non-R&D intangibles

• Software, R&D, Arch-Des, NFP, Min-Art, Adv-Mkt,Org cap, Training


Contributions to labour productivity growth: 1995-2009

!1.00%

!0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

Italy% Spain% Germany% France% Netherlands% Austria% United%Kingdom%

Finland%

Labour%Quality% Tangible%Capital%Deepening% Intangible%Capital%Deepening% TFP%Growth%


TFP, Tangible Non-ICT, ICT, R&D, and Non-R&DIntangible Capital Deepening: 1995-2009

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!0.50&

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Italy& Spain& Germany& France& Netherlands& Austria& United&Kingdom&

Finland&

Tang%noICT%% ICT% R&D%(1)% Non%R&D%Intang% TFP%Growth%


GA - Main results (1)

• More intangible-intensive economies are the faster growthperformers. More tangible-intensive countries are the slowergrowth performers.

• ICT exceeds tangible non-ICT capital contribution in the bestperformers. The opposite holds in the slow growing economies.

• R&D and Non-R&D intangibles are relevant sources of growthin almost all sample countries but• ICT, R&D and Non-R&D intangible capital contribution ishigher than tangible non-ICT capital contribution in fastgrowing countries;

• Overall contribution of R&D and Non-R&D intangibles isrelatively low in the slow growing economies;

• Non-R&D intangible contributes more than R&D capitaldeepening.


Industry contributions to labour productivity growth:1995-2009

!0.50%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

IT% ES% DE% FR% NLD% AT% FI% UK%

Agriculture&Fishing/ Manufacturing/ Other/industries/(2)/ Trade/ Financial/Services/ Other/Services/


R&D and Non-R&D Intangible Capital Deepening:contributions to industry productivity growth 1995-2009

0.00#

0.50#

1.00#

1.50#

2.00#

2.50#

Manufacturing+ Trade+ Financial+Services+ Other+Services+


GA - Main results (2)

• High heterogeneity of industry contributions to productivitygrowth• Manufacturing (R&D intensive) is the driving sector in FI,Services (Non-R&D Intangible intensive) in NLD, AT and UK

• On average, Non-R&D Intangible capital provides a highercontribution than R&D and mainly in the service sectors

• ICT and Non-R&D Intangibles are the main drivers of servicesproductivity growth.


Summing up

• Non-R&D intangibles and ICT are relevant sources of productivitygrowth in advanced economies

• Strong correlation between Non-R&D intangibles and ICTsuggests they are strategic policy variables

• Innovation is more than ICT. Complementary organizational andtraining investments will continue to be important for firms andindustries to thrive in the digital future

• Intangible investments include more than R&D. Software,databases, and design are sizeable and important aspects of NPDin services industries

• The non-rival nature of intangibles suggest they can be (and arebeing) re-deployed across the globe yet we do not track this at allwell.


Backup slides


intangibles and industry productivity growth: the eu economies

Economy & Finance