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Intangible Investment and Levels of Economic Development

Bart van Ark, Janet Hao, Carol Corrado and Charles HultenMarch 2010

The Conference Board


Intangible Assets: a New Driver of the Modern Economy

Traditional assets can be touched or seen. land, plant and equipment.

Intangible assets cannot be touched or seen, such as software development of Microsoft, research and development of Johnson & Johnson, brand equity of Coca Cola and logistics management of Walmart.

We should capitalize intangible assets as we capitalize tangible assets because both use current resources in order to increase future production and consumption (Corrado, Hulten and Sichel, 2005).


List of Intangible Assets

Computerized information Software (already in NA) Database

Innovative property R&D Mineral exploration and evaluation (already in NA) Copyright and licenses New products in financial industry Architectural and engineering designs

Economic Competencies Brand equity Firm-specific human capital Organizational structure

Source: Corrado, Hulten and Sichel (2005).


Goal of This Research

Carrying out growth accounting using intangible assets.

Comparing intangible assets across 16 countries that have estimates of intangibles available.

Exploring the possible determinants of intangible investment.


0

5

10

15

20

25

30

Intangible and Tangible Investment in the Market Sector (% GDP)

intangible investment

tangible investment

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , and Marrano et al. (2009) for the UK.


-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

Contribution of Inputs to Labor Productivity Growth (1995-2006)

ICT NonICT Intangibles Labor Quality MFP


2.96 3.06

2.00 2.11 1.792.36

4.60

0.470.29

3.27


-2.00

-1.00

0.00

1.00

2.00

3.00

4.00

5.00

Contribution of Inputs to Labor Productivity Growth (1995-2006)

ICT NonICT Intangibles Labor Quality MFP


50% 38%

37% 46% 42%54%

23%

8%16%

8%


USA EU9 Germany France Italy Spain Austria Denmark UK Finland SwedenExcluding Intangible Capital (%)

LP growth 2.75 1.59 1.62 1.83 0.26 0.35 1.99 1.54 2.90 3.24 3.70Tangible deepening (ex. software)0.77 0.69 0.80 0.51 0.43 0.77 0.26 0.78 1.10 0.23 1.60Labour composition 0.20 0.24 -0.16 0.44 0.24 0.68 0.24 0.19 0.26 0.14 0.30MFP 1.78 0.66 0.98 0.88 -0.41 -1.10 1.49 0.57 1.54 2.86 1.80

Including Intangible Capital (%)LP growth 2.96 1.72 1.79 2.00 0.29 0.48 2.36 2.10 3.05 3.51 3.90Tangible deepening (ex. software)0.64 0.59 0.68 0.43 0.40 0.68 0.24 0.68 0.91 0.04 1.40Intangible deepening 0.83 0.41 0.38 0.48 0.12 0.12 0.55 0.72 0.69 0.75 1.80Labour composition 0.18 0.22 -0.15 0.40 0.22 0.64 0.22 0.17 0.22 0.12 0.30MFP 1.33 0.51 0.88 0.69 -0.45 -0.96 1.35 0.53 1.23 2.57 0.40

Contribution to LP Growth (1995-2006)

Source: Hao et al. (2009) for Germany, France, Italy, Spain, Austria and Denmark; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, and Edquist (2009) for Sweden.Note: Finland is from 1995 to 2005, and Sweden is from 1995 to 2004.


Correlation between Intangibles and Other Variables

Wealthier countries invest greater proportions in intangible assets.

Higher intangible investments (% GDP) is associated with greater labor productivity.

Mature financial market is associated with heavy investment in intangible assets.

Government policy is associated with intangible investment.

Openness is negatively correlated with intangible investment.


0.00%

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6.00%

8.00%

10.00%

12.00%

14.00%

0 10000 20000 30000 40000 50000

Inta

ngib

le In

vest

men

t (%

GD

P)

GDP per capita (PPP $)

Intangible Investment and GDP per Capita (2001-04)

SK

CZ

EL

USJPUK

AUSE

FINL

DKFR

DEAU

IT

ES

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. GDP per capita is from the Total Economy Database of The Conference Board.


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14.00%

0 10 20 30 40 50 60

Inta

ngib

le in

vest

men

t (%

GD

P)

LP-hour (PPP $)

Intangible Investment and Labor Productivity (2001-04)

USJP

AU

EL

SK

CZ

NLFR

UKAUFI

DKDE

ITES

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia.


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0 50 100 150

Inta

ngib

le in

vest

men

t (%

GD

P)

Market Capitalization (% GDP)

Intangible Investment and Market Capitalization (2001-04)

SK

EL

JP US

UK

CZ

AT IT

DEDK FI

NL

SEFR

ES

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. Market capitalization is from Eurostat.


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0 0.05 0.1 0.15 0.2 0.25 0.3 0.35 0.4

Inta

ngib

le in

vest

men

t (%

GD

P)

Venture Capital (% GDP)

Intangible Investment and Venture Capital (2001-04)

USUK

EL

SK

SENL

DK

FIFR

ES

DE

ITAT

CZ

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. Venture capital is from Eurostat.


0.00%2.00%4.00%6.00%8.00%

10.00%12.00%14.00%

0 20 40 60 80 100 120

inta

n in

v (%

gdp)

days required to open a business

Intangibles and Barrier of Enterpreneurship

US

AUDK NL

UKSE JPFIFR

IT AT CZDE

ELSK

ES

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. Days required to open a business is from WDI of the World Bank.


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14.00%

0 0.5 1 1.5 2 2.5 3

inta

n in

v (%

gdp)

R&D as a % of gov budget

Intangibles and R&D in Gov Budget

USJPUK

FR

ES

SE

NLDE

DK

ITATCZSK

EL

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. R&D as a share of governmetn budget is from Eurostat.


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14.00%

0 20 40 60 80 100

Inta

n in

v (%

gdp)

import (%gdp)

Intangibles and Imports (2001-04)

USJP UK SE

AUFR

DK NLFI

DEIT ES AT

CZ

SKEL

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. Imports as a percentage of GDP are from WDI of the World Bank.


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14.00%

0 2 4 6 8 10

inta

n in

v (%

GDP)

FDI (% GDP)

Intangibles and FDI (2001-04)

JPUS

UK SEAU

FIFR NL

ES CZ

SKATIT

DEDK

EL

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. FDI as a percentage of GDP is from WDI of the World Bank.


Correlations (2001-04) intan inv (%GDP)

TFP (conventional)

FDI(share of gdp) -0.26 0.52imports(%gdp) -0.52 0.43exports (%gdp) -0.37 0.39high-tech exports (% of manufactured exports) 0.77 0.15

R&D in gov budget 0.80 -0.06time required to start a business (days) -0.57 -0.10Military Expenditure (% GDP) -0.04 0.27% population using computer 0.77 0.37%population using internet 0.69 0.48share researchers(all) in total emp 0.62 0.33share tertiary edu 0.39 -0.11sell goods in other countries--innov enterprises 0.46 -0.38

sell goods in other countries--non-innov enterprises -0.03 -0.49

Gross operating surplus/turnover of manufacturing(%) -0.34 0.13


Conclusion and Future Research

Intangible assets explains about a quarter of LP growth in the US and larger countries of the EU.

Western Europe benefited more from intangible assets than catching-up countries did.

Catching-up countries such as Czech Republic, Greece and Slovakia benefited more from tangible assets than from intangible assets.

To find out what caused the cross-country difference, we need to look deeper into each economy and possibly carry out analysis at the industry level.


Backup Slides


Intangible Assets Depreciation Rates

SoftwareDatabases

0.3150.315

R&DMineral exploration and evaluation

0.20.2

Copyright and license costsDevelopment costs in the financial industryNew architectural and engineering designs

0.20.20.2

Advertising expenditureMarket researchFirm-specific human capitalOrganizational structure

0.60.60.40.4

Source: CHS (2005)


Austria Czech

Republic Denmark Greece Slovakia

1. Computerized information 0.89 0.71 1.87 0.34 0.37 a) Software 0.85 0.71 1.85 0.33 0.37 b) Databases 0.04 0.01 0.03 0.01 0.00

2. Innovative property 3.14 2.80 3.06 0.62 1.76 a) R&D, including social sciences and humanities 1.74 1.03 1.68 0.18 0.21 b) Mineral exploration and evaluation - - - - - c) Copyright and license costs 0.10 0.04 0.16 0.02 0.04 d) Development costs in financial industry 0.63 0.55 0.54 0.16 0.37 e) New architectural and engineering designs 0.66 1.18 0.69 0.27 1.15

3. Economic competencies 2.42 2.93 2.93 0.63 2.39 a) Brand equity 0.25 1.37 0.63 0.15 1.04 Advertising expenditure 0.15 0.94 0.36 0.08 0.46 Market research 0.11 0.43 0.27 0.06 0.59 b) Firm-specific human capital 0.79 0.63 1.49 0.19 0.51 Continuing vocational training 0.46 0.63 1.07 0.17 0.51 Apprentice training 0.33 0.00 0.42 0.02 0.00 c) Organizational structure 1.38 0.93 0.81 0.29 0.83 Purchased 0.93 0.26 0.45 0.06 0.25 Own account 0.44 0.67 0.36 0.23 0.58

Total Investment (% GDP) 6.46 6.45 7.86 1.59 4.53

2006


Source of Growth AnalysisGermany France Italy Spain Austria Denmark UK Finland Sweden EU9

ContributionsExcluding intangibles 1.62 1.83 0.26 0.35 1.99 1.54 2.90 3.24 3.70 1.59ICT deepening (ex. software)0.23 0.14 0.12 0.21 0.29 0.50 0.74 0.23 0.30 0.30Non-ICT deepening 0.57 0.37 0.31 0.56 -0.03 0.28 0.36 1.30 0.38Labour composition -0.16 0.44 0.24 0.68 0.24 0.19 0.26 0.14 0.30 0.24MFP 0.98 0.88 -0.41 -1.10 1.49 0.57 1.54 2.86 1.80 0.66

Including intangibles 1.79 2.00 0.29 0.48 2.36 2.10 3.05 3.51 3.90 1.72ICT deepening (ex. software)0.20 0.12 0.11 0.19 0.26 0.44 0.63 0.04 0.30 0.26Non-ICT deepening 0.48 0.31 0.29 0.49 -0.02 0.24 0.28 1.10 0.33Intangible deepening 0.38 0.48 0.12 0.12 0.55 0.72 0.69 0.75 1.80 0.41Labour composition -0.15 0.40 0.22 0.64 0.22 0.17 0.22 0.12 0.30 0.22MFP 0.88 0.69 -0.45 -0.96 1.35 0.53 1.23 2.57 0.40 0.51Source: Hao et al. (2009) for Germany, France, Italy, Spain; and Austria, Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Edquist (2009) for Sweden, and Van Rooijen-Horsten et al. (2008) for the Netherlands.


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