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Matilde Mas Ivars - I Workshop KIIS. Valencia Nov15

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Improving EU productivity. The role of ICT, human capital and intangible assets. Paper by Matilde Mas in I Workshop KIIS. Valencia Nov15

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Matilde Mas Ivars - I Workshop KIIS. Valencia Nov15

  1. 1. [ 1 ] Improving EU productivity The role of ICT, human capital and intangible assets Matilde Mas Universitat de València and Ivie I Workshop KIIS Knowledge, Innovation and Internalization Strategies Facultad d´Economia, Universitat de Valencia Valencia, 19th-20th November This project has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement No. 612774
  2. 2. [ 2 ] Labour Productivity growth is key for per capita income growth “Productivity isn’t everything, but in the long run it is almost everything”.- Paul Krugman y = 1,01x + 0,21 R² = 0,90 ‐1 0 1 2 3 4 5 6 ‐1 0 1 2 3 4 5 6 Per capita income growth (percentage), 1950‐2014 Labour productivity  growth (percentage), 1950‐2014 Figure 1. Labour productivity and per capita income, 1950-2014 Source: Total Economy Database, May 2015 (TCB)
  3. 3. [ 3 ] Objetive  To revise the behaviour followed by EU productivity  From an international perspective, comparing the EU with 12 leading economies of the world  With a high level of industry disaggregation  Focusing on the most recent period 2006-2013  Making use of the highly disaggregated PREDICT database  Searching for potential factors explaining its poor performance:  The importance of the ICT industries  Intangible investment  R&D  Human Capital  Other intangibles (Organizational Capital and Training)
  4. 4. [ 4 ] PREDICT and DICTA Projects PREDICT: Period: 2006-2012 Variables: GVA; Employment (nº of Workers); Labour Productivity; BERD; R&D Personnel; R&D Researchers Countries: EU-28, US, Norway, Switzerland, Japan, China, India, Korea, Taiwan, Australia, Canada, Russia and Brazil Level of Disaggregation (for details see below) Focused on: ICT industries (OECD (2007) Definition) Non-ICT Industries but R&D Intensive Two ICT industries definition: Comprehensive and Operational (excludes Trade) DICTA: Period: 1995-2015 Variables: same than PREDICT but including also the variable hours worked Countries: same than PREDICT Level of Disaggregation (for details see below) Same than PREDICT but: Much higher level of ICT service industries disaggregation It also Includs: Media and Content industries Retail sale via mail order hours or via Internet Two ICT industries definition: Comprehensive and Operational (excludes Trade)
  5. 5. [ 5 ] Industry Disaggregation. PREDICT 2015 NACE Rev.2. Description a) ICT sector (comprehensive definition) 261‐264, 268, 465, 582, 61, 62, 631, 951 A. ICT Total   [A=B+C] 261‐264, 268    B. ICT manufacturing industries   [B=1 to 5] 261         [1] Manufacture of electronic components and boards 262         [2] Manufacture of computers and peripheral equipment 263         [3] Manufacture of communication equipment 264         [4] Manufacture of consumer electronics 268         [5] Manufacture of magnetic and optical media 465, 582, 61, 62, 631, 951    C. ICT total services   [C=C1+C2] 465    C.1. ICT trade industries   [C1=6+7] 4651         [6] Wholesale of computers, computer peripheral equipment and software 4652         [7] Wholesale of electronic and telecommunications equipment and parts 582, 61, 62, 631, 951    C.2. ICT services industries   [C2=8 to 12] 582         [8] Software publishing 61         [9] Telecommunications 62         [10] Computer programming, consultancy and related activities 631         [11] Data processing, hosting and related activities; web portals 951         [12] Repair of computers and communication equipment TOT D. Total (ICT and non‐ICT) b) ICT sector (operational definition) 261‐264, 61, 582, 62, 631, 951 A'. ICT Total (operational)   [A'=B'+C'] 261‐264    B'. ICT manufacturing industries (operational)   [B'=1 to 4] 261         [1] Manufacture of electronic components and boards 262         [2] Manufacture of computers and peripheral equipment 263         [3] Manufacture of communication equipment 264         [4] Manufacture of consumer electronics 582, 61, 62, 631, 951    C'. ICT services industries (operational)   [C'=9+13] 61         [9] Telecommunications 582, 62, 631, 951         [13] Computer and related activities   [13=8+10+11+12] c) Additional sectors 10‐33 Manufacturing 20‐21 Manufacture of chemicals and chemical products; Manufacture of pharmaceuticals, medicinal chemical and botanical products 20    Manufacture of chemicals and chemical products 21    Manufacture of pharmaceuticals, medicinal chemical and botanical products 27‐28 Manufacture of machinery and equipment 29‐30 Manufacture of transport equipment 29    Manufacture of motor vehicles, trailers and semi‐trailers 30    Manufacture of other transport equipment 303       Manufacture of air and spacecraft and related machinery 45‐47 Wholesale and retail trade, repair of motor vehicles and motorcycles 45    Wholesale and retail trade and repair of motor vehicles and motorcycles 49‐99 Services, except trade 49‐53 Transportation and storage 58‐63 Information and communication 64‐66 Financial and insurance activities 69‐82 Professional, scientific, technical, administration and support service activities 69‐75    Professional, scientific and technical activities 85 Education 86‐88 Human health and social work activities
  6. 6. [ 6 ] Industry Disaggregation. DICTA 2015 NACE Rev.2. Description a) ICT sector (comprehensive definition) 261‐264, 268, 465, 582, 61, 62, 631, 951 A. ICT Total   [A=B+C] 261‐264, 268    B. ICT manufacturing industries   [B=1 to 5] 261         [1] Manufacture of electronic components and boards 2611         [1.1] Manufacture of electronic components 2612         [1.2] Manufacture of loaded electronic boards 262         [2] Manufacture of computers and peripheral equipment 263         [3] Manufacture of communication equipment 264         [4] Manufacture of consumer electronics 268         [5] Manufacture of magnetic and optical media 465, 582, 61, 62, 631, 951    C. ICT total services   [C=C1+C2] 465    C.1. ICT trade industries   [C1=6+7] 4651         [6] Wholesale of computers, computer peripheral equipment and software 4652         [7] Wholesale of electronic and telecommunications equipment and parts 582, 61, 62, 631, 951    C.2. ICT services industries   [C2=8 to 12] 582         [8] Software publishing 5821         [8.1] Publishing of computer games 5829         [8.2] Other software publishing 61         [9] Telecommunications 611         [9.1] Wired telecommunications activities 612         [9.2] Wireless telecommunications activities 613         [9.3] Satellite telecommunications activities 619         [9.4] Other telecommunications activities 62         [10] Computer programming, consultancy and related activities 6201         [10.1] Computer programming activities 6202‐6203         [10.2] Computer consultancy and computer facilities management activities 6202         [10.2.1] Computer consultancy activities 6203         [10.2.2] Computer facilities management activities 6209         [10.3] Other information technology and computer service activities 631         [11] Data processing, hosting and related activities; web portals 6311         [11.1] Data processing, hosting and related activities 6312         [11.2] Web portals 951         [12] Repair of computers and communication equipment 9511         [12.1] Repair of computers and peripheral equipment 9512         [12.2] Repair of communication equipment TOT D. Total (ICT and non‐ICT) b) ICT sector (operational definition) 261‐264, 61, 582, 62, 631, 951 A'. ICT Total (operational)   [A'=B'+C'] 261‐264    B'. ICT manufacturing industries (operational)   [B'=1 to 4] 261         [1] Manufacture of electronic components and boards 262         [2] Manufacture of computers and peripheral equipment 263         [3] Manufacture of communication equipment 264         [4] Manufacture of consumer electronics 582, 61, 62, 631, 951    C'. ICT services industries (operational)   [C'=9+13] 61         [9] Telecommunications 582, 62, 631, 951         [13] Computer and related activities   [13=8+10+11+12]
  7. 7. [ 7 ] Industry Disaggregation. DICTA 2015 (Cont.) NACE Rev.2. Description c) Retail sale via mail order houses or via Internet 4791 Retail sale via mail order houses or via Internet d) Media and Content sector 581, 59, 60, 639 A. MC sector [A=B+C+D] 581 [B] Publishing of books, periodicals and other publishing activities   [B=1 to 4] 5811 [1] Book publishing 5812 [2] Publishing of directories and mailing lists 5813‐5814 [3] Publishing of newspapers, journals and periodicals 5813 [3.1] Publishing of newspapers 5814 [3.2] Publishing of journals and periodicals 5819 [4] Other publishing activities 59‐60 [C] Audiovisual and broadcasting activities [C=5 to 6] 59 [5] Motion picture, video and television programme production, sound recording and music publishing activities 591 [5.1] Motion picture, video and television programme activities 5911 [5.1.1] Motion picture, video and television programme production activities 5912 [5.1.2] Motion picture, video and television programme post‐production activities 5913 [5.1.3] Motion picture, video and television programme distribution activities 5914 [5.1.4] Motion picture projection activities 592 [5.2] Sound recording and music publishing activities 60 [6] Programming and broadcasting activities 601 [6.1] Radio broadcasting 602 [6.2] Television programming and broadcasting activities 639 [D] Other information service activities [D=7 to 8] 6391 [7] News agency activities 6399 [8] Other information service activities n.e.c. e) Additional sectors 10‐33 Manufacturing 20‐21 Manufacture of chemicals and chemical products; Manufacture of pharmaceuticals, medicinal chemical and botanical products 20    Manufacture of chemicals and chemical products 21    Manufacture of pharmaceuticals, medicinal chemical and botanical products 27‐28 Manufacture of machinery and equipment 29‐30 Manufacture of transport equipment 29    Manufacture of motor vehicles, trailers and semi‐trailers 30    Manufacture of other transport equipment 303       Manufacture of air and spacecraft and related machinery 45‐47 Wholesale and retail trade, repair of motor vehicles and motorcycles 49‐99 Services, except trade 49‐53 Transportation and storage 58‐63 Information and communication 64‐66 Financial and insurance activities 69‐82 Professional, scientific, technical, administration and support service activities 69‐75    Professional, scientific and technical activities 85 Education 86‐88 Human health and social work activities
  8. 8. [ 8 ] The EU should aim at improving its Labour Productivity Figure 2. Labour productivity, average 2006-2013 (Thousands of 2010 EUR PPP) Source: DICTA 2015 database elaborated by Ivie and JRC-IPTS 85.2 77.0 66.3 64.2 62.9 60.2 56.9 52.2 46.9 29.3 21.1 11.9 8.4 0 10 20 30 40 50 60 70 80 90 Norway US Switzerland Australia Taiwan Canada EU Japan Korea Russia Brazil China India Average 25.7
  9. 9. [ 9 ] The rate of growth of labour productivity (LP) in the EU has been…modest Figure 3. Labour productivity growth. EU and Non-EU countries, 1995-2014 (annual rates in percentages) Source: Total Economy Database, May 2015 (TCB) 8.19 4.68 3.17 2.98 2.72 1.67 1.26 1.02 0.96 0.96 0.86 0.85 0.75 0 1 2 3 4 5 6 7 8 9 10 China India Korea Taiwan Russia US Australia EU Canada Japan Brazil Switzerland Norway Average = 2.3%
  10. 10. [ 10 ] The leadership of the US in LP with respect to the EU has widened during the 2006-2012 period in all industries but two ICT industries 1 Manufacture of electronic components and  boards [261] 2 Manufacture of computers and peripheral  equipment [262] 3 Manufacture of communication equipment  [263] 4 Manufacture of consumer electronics [264] 5 Telecommunications [61] 6 Computer and related activities   [5820, 62,  631, 951] Non‐ICT industries 7 Manufacture of chemicals and chemical  products [20] 8 Manufacture of pharmaceuticals, medicinal  chemical and botanical products [21] 9 Manufacture of machinery and equipment  [27‐28] 10 Manufacture of motor vehicles, trailers and  semi‐trailers [29] 11 Manufacture of other transport equipment  [30] 12 Transportation and storage [49‐53] 13 Information and communication [58‐63,  except Computer and related activities] 14 Financial and insurance activities [64‐63] 15 Professional, scientific and technical  activities [69‐75] 16 Administration and support service  activities [76‐82] 17 Education [85] 18 Human health and social work activities [86‐ 88] Figure 6. ICT sector Productivity. Dynamics of US-EU differences by industry. 2006 and 2013 (Thousands of 2010 euros PPS)
  11. 11. [ 11 ] We will concentrate on some of the most relevant ones (though not all) with the objetive of checking how EU performs: 1. The role of ICT industries and ICT R&D 2. Intangible Assets 2.1 R&D, 2.2 Human capital, 2.3 Other Intangible Assets: Organizational Capital and Training What might be the sources of EU disappointing performance
  12. 12. [ 12 ] 1.The role of ICT • Traditionally, the manufacturing sector has experienced higher rates of LP growth than services. • Since the ICT revolution this classical view has been challenged, basically due to the contribution of ICT to: • i) economic globalization; • ii) vertical disintegration of the production process; • iii) organizational changes within firms And, hence, to productivity growth. • ICT can be viewed from the producing industries side or from the assets´ (software, hardware and communications) side. Software is both an ICT asset and an intangible asset. • ICT impact on LP operates through three classical channels: i) labour quality; ii) technological progress embedded in capital assets; iii) MFP • Plus the spillover effects generated by the difussion of technical progress from ICT producing to ICT using industries. • And its complementarity with other, mainly intangible, assets.
  13. 13. [ 13 ] Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS EU NO CH AU BR CA CN IN JP KO RU TW US y = 0,59x + 3,16 R² = 0,76 0 10 20 30 40 50 60 70 80 90 100 0 50 100 150 200 Labour productivity (in thousands 2005 EUR PPS), average 2006‐ 2012 ICT Labour productivity (in thousands 2005 EUR PPS) average 2006‐2012 There is a positive and significant correlation between LP growth in the ICT sector and aggregated LP growth. Figure 4. Total labour productivity and ICT labour productivity. EU and Non-EU countries, average 2006-2012
  14. 14. [ 14 ] LP of ICT sector improved in all countries in relation to the EU Figure 5. ICT sector Productivity. Dynamics of other economies’ differences vs. the EU average. 2006 and 2013 (Thousands of 2010 euros PPS)
  15. 15. [ 15 ] 3. Spillover effects of ICT. Intangibles and Growth • The impact of ICT technologies should not be considered in isolation from a broader concept of investment, especially intangible assets. • Tangible assets include machinery, buildings, as well as ICT assets such as hardware and communication. Only recently National Accounts recognize some intangible assets such as software (ICT) and R&D. • ICT, intangible assets and productivity (both labour and MFP) are closely related • Empirical evidence shows a strong correlation between intangibles and LP and MFP growth (Corrado, Haskel, Jona-Lasinio and Iommi (2013)). • Corrado, Haskel and Jona-Lasinio (2014) also find: • i) a complementary relation between ICT and intangible capital • ii) significant spillovers of intangible capital.
  16. 16. [ 16 ] The US, followed by the UK, have the highest share of intangible assets in total GFCF. Greece, Portugal, Spain and Italy are on the lowest bound. Figure 8. Share of GFCF on intangible assets over total GFCF. EU-15 and US. Average 2006-2010 (percentages) Source: Eurostat, INTAN-Invest and own elaboration. 63.0 56.7 46.8 45.7 45.5 42.8 41.8 41.7 41.5 41.5 40.6 35.0 33.3 28.6 27.8 27.5 19.0 0 10 20 30 40 50 60 70 US UK Sweden Netherlands France Ireland Denmark Belgium Finland Germany EU15 Luxembourg Austria Portugal Italy Spain Greece Average = 40.6%
  17. 17. [ 17 ] 3.1. R&D and growth • R&D affects LP by: • i) improving the quality of goods and services produced • ii) reducing the average production costs • iii) widening the array of final goods or intermediate inputs available to companies. • R&D may also (and it usually does) produce positive spillover effects (knowledge spillovers) • The return to R&D is not an invariant parameter, but the outcome of a complex interaction between firm strategy, competition strategy, and the macroeconomic environment which is basically unpredictable (Hall, Mairesse and Mohnen, 2010)
  18. 18. [ 18 ] The advantage of the US in terms of LP is higher than the one it should have according to its BERD intensity Figure 9. BERD intensity and labour productivity, average 2006 and 2012 Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS EU28 NO CH AU BR CA CN IN JP KO RU TW US y = 13.98x + 25.01 R² = 0.22 0 10 20 30 40 50 60 70 80 0 1 2 3 Labour productivity (in thousands 2005 EUR PPS),  average 2006‐2012 BERD intensity, average 2006‐2012
  19. 19. [ 19 ] Figure 10. BERD intensity (BERD/GDP). EU and Non-EU countries, average 2006-2012 (Percentages) BERD intensity in the EU ranks 7th out of 13 economies Source: Eurostat and PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS 2.75 2.61 2.14 2.01 1.95 1.27 1.23 1.22 0.99 0.85 0.70 0.49 0.26 0.0 0.5 1.0 1.5 2.0 2.5 3.0 Korea Japan Switzeland Taiwan US Australia EU China Canada Norway Russia Brazil India average = 1.5%
  20. 20. [ 20 ] BERD intensity is much higher in the ICT sector in all countries contributing to its faster LP growth Figure 6. BERD intensity (BERD/GDP). Whole economy and ICT sector. EU and Non-EU countries, average 2006-2012 (Percentages) Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS 0 2 4 6 8 10 12 14 16 18 20 Korea Japan Taiwan US Norway Canada¹ EU China Australia Brazil¹ India Russia Total ICT sector
  21. 21. [ 21 ] 3.2. Human Capital and Growth • It is widely accepted the need to distinguish between the number of workers (labour quantity) and their qualification measured from different perspectives (labour quality). • Dynamics is important for the impact of human capital on economic growth: • Programs to improve cognitive skills through schools take time to be implemented • The impact of improved skills will not be realized until the students with greater skills move into the labour force. • The economy responds over time through the development and implementation of new technologies • A good indicator of Human Capital should combine education attainment with type of ocuppation performed and level of competencies (PIAAC). • ICT have a positive effect on these three elements
  22. 22. [ 22 ] EU NO CH AU BR CA JP KO RU TW US 0 20 40 60 80 100 0 10 20 30 40 50 60 Labour productivity (in thousands 2005 EUR PPS), average 2006‐ 2012 Highly qualified employment/Total employment (%) average 2006‐2012 y=0,92x+18,6 R²=0,24 The US uses its qualified workers in a more efficient way than the EU. The US LP is higher… Figure 11. Labour productivity and highly qualified employment*. EU and Non-EU countries, average 2006-2012 * Employment in ISCO 1-3/total employment Source: PREDICT Report 2015 database elaborated by Ivie and JRC-IPTS and ILO
  23. 23. [ 23 ] Figure 12. Employment in ISCO 1-3/Total employment. EU and Non-EU countries, average 2006-2013 (Percentages) …for a similar share of highly qualified employment Note: for China and India data are not available Source: Eurostat, ILO and own elaboration 47.9 44.5 43.1 42.6 41.5 38.9 36.8 33.2 24.1 21.6 19.9 0 10 20 30 40 50 60 Switzerland Norway Canada Australia Russia EU US Taiwan Japan Korea Brazil Average = 35,8%
  24. 24. [ 24 ] UK and Netherlands have a larger share of OC investment than the US, and Denmark a larger share in Training. Spain and Greece appear in the lowest bound. Figure 14. Share of GFCF on intangible assets over total GFCF. EU-15 and US. Average 2006-2010 (percentages) Source: Eurostat, INTAN-Invest and own elaboration. a) Organisational capital b) Training 19.6 14.4 14.4 12.9 12.1 11.5 10.4 10.2 9.6 8.6 8.4 8.2 6.3 6.1 5.1 4.2 2.1 0 5 10 15 20 25 UK Netherlands US Belgium France Ireland EU15 Sweden Portugal Germany Finland Austria Italy Luxembourg Denmark Spain Greece Average = 10.4% 7.2 6.9 6.6 6.1 5.9 5.7 5.6 4.9 4.9 4.1 3.7 3.5 3.1 2.9 2.6 2.4 0.9 0 1 2 3 4 5 6 7 8 9 10 Denmark US UK Germany Ireland France Netherlands Luxembourg EU15 Austria Sweden Italy Finland Belgium Portugal Spain Greece Average = 4.9%
  25. 25. [ 25 ] Facts: The EU has a LP problem as shown by: • A lower LP level than the US, Swiztzerland, Norway, Australia, Canada and Taiwan • An increasing gap with the US that has widened steadily since 1995, and worsened after 2009 What are the reasons underpinning this EU disappointing achievement 1. The role of ICT industries and ICT R&D. LP in the EU ICT sector has shown during 2006-2013: • Worse performance than the other 12 economies considered • Lower BERD intensity than Norway, Canada, Japan, Korea, Taiwan and the US It should be highlighted that the EU LP productivity gap affects not only the ICT sector but (almost) all sectors of the economy. Thus, the EU has not fully taken advantage of the efficiency gains enabled by the ICT revolution. Something else is missing 2. Intangible Assets. Their impact is positively affected by ICT through spillover and complementarity effects which also reinforce the positive effects of ICT. • The EU needs increasing the share of GFCF in intangibles approaching that of the US • Specially BERD intensity (both total and ICT BERD) which is much lower • As well as in organisational capital, on-the-job training, design and branding • However, the EU also needs to improve the statistical information in these last forms of intangible capital Last Warning: The EU is conformed by very different countries/regions. The present situation is much more unfavourable for Southern and Eastern countries/regions. Regional Policies (as well as information at the regional level) are needed . Concluding Remarks

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