Intangible Capital and Labor Productivity Growth— Revisiting the Evidence: An Update (update of results in D6.6)

The evidence on the role played by intangible capital in labor productivity growth remains inconclusive. Although most studies agree that intangible capital makes a positive contribution to labor productivity growth (LPG), a precise determination of this effect remains ambivalent. While traditional growth accounting studies find that intangible capital accounts for around 25 percent of labor productivity growth, this magnitude stretches as far as 50 percent in studies that use an econometric cross-country growth accounting approach. In addition, evidence from most recent cross-country sectoral analyses remains equally ambivalent.

This study analyzes the impact of intangible capital on labor productivity growth across countries at the aggregate and sectoral levels by employing an econometric growth-accounting approach. First, the results show that intangible capital deepening accounts for around 50 percent of labor productivity growth at both the aggregate and sectoral level. Second, the paper finds that this positive impact of intangible capital on productivity growth at both levels of aggregation is driven by investments in economic competencies, the only intangible group not covered in the national accounts. Third, the results reveal deep sectoral heterogeneities regarding investments and productivity effects of different intangible types.

This discussion paper is an update of an earlier discussion paper by the author (Roth and Sen 2021).

See the paper here.