Intangible Capital and Labor Productivity Growth: Revisiting the Evidence (D6.6)

Deliverable on the impact of intangibles on labor productivity growth

Using an econometric growth-accounting approach across countries and sectors on the latest harmonized 2019 EU KLEMS data, this paper conducts a cross-country sectoral analysis and investigates the impact of different intangibles on labor productivity growth. Focusing on three different aggregation levels of the market economy for an EU-10 country sample for the period 1995-2017, this study produces three new results:

First, the results show that intangible capital deepening accounts for around 40 percent of labor productivity growth at both the aggregate and sectoral level and that intangible capital has a greater elasticity at the sectoral level than at the aggregate level. Second, the paper finds that the 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.

Lastly, the results reveal deep sectoral heterogeneities regarding investments and productivity effects of different intangible types. More specifically, R&D (research and development) makes up a large share of intangible capital investments and strongly impacts labor productivity growth in the manufacturing sector. On the other hand, investments in software and organizational capital in the market services sector constitute the majority of intangible investments. These two intangible types also exert strong effects on labor productivity growth in this sector.

See the paper here.