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Private and Public Intangible Capital:
Productivity Growth and New Policy Challenges
C. Corrado, (The Conference Board), New York
J. Haskel, (Imperial College, CEPR and IZA), London
M.Iommi, (LUISS Lab and ISTAT), Rome
C. Jona-Lasinio, (LUISS Lab and ISTAT), Rome
SEM - OECD
22-24 July 2015, Paris
This project has received funding from the European Union’s Seventh Framework Programme for
research, technological development and demonstration under grant agreement No. 612774
C. Jona-Lasinio SPINTAN 1 / 20
Aim
Complete the coverage of intangible investment by industry making
possible analysis of productivity for the total economy based on a
complete accounting of intangible capital inputs.
• Existing measures of intangible investment, INTAN-Invest, cover
a subset of industries: the market sector
• SPINTAN covers the nonmarket sector
• New conceptual and measurement challenges
• Identify the asset boundary in the total economy
• Impute a rate of return to public capital formation
• Investigate behavioural link public to private and vice versa
(e.g. role of public sector R&D on private sector)
C. Jona-Lasinio SPINTAN 2 / 20
Investment slowdown: a common trend?
0%#
2%#
4%#
6%#
8%#
1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015#
United#States## Japan## EU812#
EU#Core#9# EU#Cohesion#4#
forecast#period#201482016#
10%#
15%#
20%#
25%#
30%#
35%#
1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015#
United#States## Japan##
EU812# EU#Core#9#
EU#Cohesion#4#
forecast#period#201482016#
Note: EU Core 9 is Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, and the United
Kingdom. EU Cohesion 4 is Greece, Ireland, Spain and Portugal. EU-12 are the 12 member states that
joined the EU between 2004 and 2007.
Data sources: AMECO,
OECD.stat
GFCF % of GDP, 1970-2016
General government Private sector (includes SOEs)
C. Jona-Lasinio SPINTAN 3 / 20
Our contribution
Some education and health is a mix of private and public, market and
non-market. So to do market sector analysis, one should really break
education and health into market and nonmarket.
• And one should really do this for all other industries too.
• What do we do?
• We focus on a number of industries that potentially have
significant non-market involvement.
• We break those industries into market and non-market.
C. Jona-Lasinio SPINTAN 4 / 20
The scope of intangible assets used by the public sector:
industries of interest
laboratories, public parks and museums) in many countries; see table 1 below. The use of “mar-
ket” vs. “nonmarket” groupings of industries is thus not precise because an industry can reflect
activity carried out by a mix of producers, as is evident with NACE Section R and the larger
section of which NACE Section MB is a part.4
Table 1: SPINTAN Industries of Interest
nace nace
section Industry title number
MB Scientific research and development 72
O Public administration and defence; compulsory social security 84
P Education 85
QA Human health activities 86
QB Residential care and social work activities 87-88
R Creative, arts and entertainment activities;
libraries, archives, museums and other cultural activities 90-91
Gambling and betting activities;
sports activities and amusement and recreation activities 92-93
Note—NACE Rev. 2.
Before we leave the subject of NACE-defined industries, it must be said that in some countries
there are industries with significant government or nonmarket production besides those listed
in table 1. These tend to be industries that engage in activities not germane to our topic areas,
Besides Public administration and defence, other industries in the
table contain a mix of market and nonmarket producers.
C. Jona-Lasinio SPINTAN 5 / 20
Multiple measurement dimensions of Public intangibles
!CHS!intangible!assets!
Nonmarket!sector!4!industries!
!Informa9on,!
Scien9fic!and!
Cultural!assets!
Societal!
Competencies!
NA!intangibles!(So$ware,*
R&D,*Mineral*explora4on)*
Non!NA!intangibles!(Open*
data,*Cultural*and*heritage,*
including*design,*Brands,*
Organiza4onal*capital,*
Func4onBspecific*human*
capital)*
C. Jona-Lasinio SPINTAN 6 / 20
Measuring nominal intangible investments
PN
Nt =
N
i=1
S
s=1
(γown−account
i,s,t λown−account
i,s,t OwnCostIndicator
i,s,t (1)
+ γpurchased
i,s,t λpurchased
i,s,t PurchasedIndicator
i,s,t )
where:
• PN
Nt is nominal expenditure, in industry i and institutional sector s;
• OwnCost and Purchased are time-series indicators of the own-account and
purchased components of intangible investment;
• λ indicates the adjustment to the time-series indicator that is needed to transform
it to a sector-industry gross output (own-account) or gross spending measure.
• γ is the capitalization factor, namely, a parameter that adjusts a spending measure
to a measure of investment—a fraction of revenues or employee time, say, devoted
to long-lived activities.
C. Jona-Lasinio SPINTAN 7 / 20
Intangible investment in the total economy:
measures developed so far
Two sets of intangible measures by industry and institutional sector:
CHS type assets (Data and Trends)
(Organizational capital (purchased and own account),
Brands, Design, Training)
• Geographical coverage:
(AT, BE, DE, ES, FI, FR, IT, NL, SE, UK , US )
• Time coverage: 1995-2010
CHS type assets and NA intangibles (SOG analysis)
• Geographical coverage: (DE, ES, FI, IT, UK)
• Time coverage: 1995-2009
C. Jona-Lasinio SPINTAN 8 / 20
Intangible shares of Total value added
Overall selected intangible investment accounts for 8% to 3% of total value added with
private and public sectors accounting on average for 5% and 0.8% respectively.
C. Jona-Lasinio SPINTAN 9 / 20
Intangible shares of Non-Market and Market value added
In most advanced countries, US, UK and FI, nonmarket sector is more intangible
intensive than the market sector. In the remaining countries it is the opposite (for these
assets). But there is also interesting variation between countries.
C. Jona-Lasinio SPINTAN 10 / 20
Composition of intangible investment expenditure
Organizational capital accounts for the largest share of intangible
investment both in the nonmarket (45%) and market (35%) sector.
C. Jona-Lasinio SPINTAN 11 / 20
Organizational capital: shares in total market and nonmarket
intangible investments
On average purchased OC accounts for a larger share both in
nonmarket and market sectors but shares varies considerably across
countries and sectors.
C. Jona-Lasinio SPINTAN 12 / 20
Return to nonmarket capital
• Once we have capitalized public intangibles we want to evaluate
their contribution to productivity growth.
• To achieve this goal we need to impute a net return to public
investments.
• A SPINTAN background paper by (Corrado and Jaeger, 2015)
explores using the social rate of time preference (Feldstein, 1964;
OECD 2009) as a relevant alternative for imputing a rate of
return to government capital.
• But at this stage we adopt the national accounts assumption of a
zero nonmarket sector rate of return.
C. Jona-Lasinio SPINTAN 13 / 20
Sources of growth analysis
• Adding national accounts intangibles (R&D, software, and artistic
and entertainment originals plus mineral exploration) to the
SPINTAN and INTAN-Invest measures of intangibles we are able
to look at a fairly complete picture of intangible inputs to total
production across a sample of advanced countries:
• Finland, Germany, Italy, Spain, and the United Kingdom
• Data sources: SPINTAN, INTAN-Invest and EUKLEMS
• Contributions to labour productivity growth of market and
nonmarket sectors.
C. Jona-Lasinio SPINTAN 14 / 20
Contributions to Labour Productivity Growth:1995-2009
The performance of advanced economies differs widely according to market versus
nonmarket sector. In Germany, UK and Finland intangible capital is an important source
of growth for the public sector.
C. Jona-Lasinio SPINTAN 15 / 20
Contributions to Labour Productivity Growth:
1995-2007 vs 2007-2009
At the very beginning of the financial crisis, intangible capital
positively supported labour productivity growth of both market and
non-market sectors in the advanced economies.
C. Jona-Lasinio SPINTAN 16 / 20
Total Factor Productivity Growth (1995-2007) and market and
non-market intangible capital deepending contributions
Fi NonM
Fi Mkt
UK NonM
UK Mkt
It NonM
It Mkt
De NonM
DE Mkt
Es NonM
Es Mkt
01234
DlnTFP
0 .2 .4 .6 .8
Contrib DlnK(intang)/H
Market and non-market DlnTFP
De
Es
Fi
It
UK
01234
DlnTFP
.2 .3 .4 .5 .6 .7
Contrib DlnK(intang)/H, Mkt
Market DlnTFP
De
Es
Fi
It
UK
01234
DlnTFP
0 .2 .4 .6
Contrib DlnK(intang)/H, Non-Mkt
Market DlnTFP
C. Jona-Lasinio SPINTAN 17 / 20
Policy challenges
• A primary characteristic of intangible capital, widely supported by
growth accounting exercises and macroeconomic studies, is to be
growth-promoting.
• This is because intangible investments likely generate spillovers to
the economic system being non-rival and possibly non-excludable.
Such spillovers, if they exist, might be within the private sector
and/or between the public and private sector.
• In the light in particular of the claim and counter-claim around
public sector austerity and fiscal policy in Europe, it would be
vital to know which, if any, public sector intangibles had positive
spillovers to the rest of the economy.
C. Jona-Lasinio SPINTAN 18 / 20
SPINTAN: Next steps
• Complete the estimates of National Account Intangibles (R&D
and Software) cross classified by industry and institutional sector.
• Generate real measures of public intangible investments and net
capital stocks.
• Impute a rate of return to nonmarket capital.
• Provide a deep investigation of mechanisms trough which the
synergies between Public and Private sector affect economic
growth.
C. Jona-Lasinio SPINTAN 19 / 20
Backup slides
C. Jona-Lasinio SPINTAN 20 / 20

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Private and Public Intangible Capital: Productivity Growth and New Policy Challenges

  • 1. Private and Public Intangible Capital: Productivity Growth and New Policy Challenges C. Corrado, (The Conference Board), New York J. Haskel, (Imperial College, CEPR and IZA), London M.Iommi, (LUISS Lab and ISTAT), Rome C. Jona-Lasinio, (LUISS Lab and ISTAT), Rome SEM - OECD 22-24 July 2015, Paris This project has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement No. 612774 C. Jona-Lasinio SPINTAN 1 / 20
  • 2. Aim Complete the coverage of intangible investment by industry making possible analysis of productivity for the total economy based on a complete accounting of intangible capital inputs. • Existing measures of intangible investment, INTAN-Invest, cover a subset of industries: the market sector • SPINTAN covers the nonmarket sector • New conceptual and measurement challenges • Identify the asset boundary in the total economy • Impute a rate of return to public capital formation • Investigate behavioural link public to private and vice versa (e.g. role of public sector R&D on private sector) C. Jona-Lasinio SPINTAN 2 / 20
  • 3. Investment slowdown: a common trend? 0%# 2%# 4%# 6%# 8%# 1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015# United#States## Japan## EU812# EU#Core#9# EU#Cohesion#4# forecast#period#201482016# 10%# 15%# 20%# 25%# 30%# 35%# 1970# 1975# 1980# 1985# 1990# 1995# 2000# 2005# 2010# 2015# United#States## Japan## EU812# EU#Core#9# EU#Cohesion#4# forecast#period#201482016# Note: EU Core 9 is Austria, Belgium, Denmark, Finland, France, Germany, Italy, Netherlands, and the United Kingdom. EU Cohesion 4 is Greece, Ireland, Spain and Portugal. EU-12 are the 12 member states that joined the EU between 2004 and 2007. Data sources: AMECO, OECD.stat GFCF % of GDP, 1970-2016 General government Private sector (includes SOEs) C. Jona-Lasinio SPINTAN 3 / 20
  • 4. Our contribution Some education and health is a mix of private and public, market and non-market. So to do market sector analysis, one should really break education and health into market and nonmarket. • And one should really do this for all other industries too. • What do we do? • We focus on a number of industries that potentially have significant non-market involvement. • We break those industries into market and non-market. C. Jona-Lasinio SPINTAN 4 / 20
  • 5. The scope of intangible assets used by the public sector: industries of interest laboratories, public parks and museums) in many countries; see table 1 below. The use of “mar- ket” vs. “nonmarket” groupings of industries is thus not precise because an industry can reflect activity carried out by a mix of producers, as is evident with NACE Section R and the larger section of which NACE Section MB is a part.4 Table 1: SPINTAN Industries of Interest nace nace section Industry title number MB Scientific research and development 72 O Public administration and defence; compulsory social security 84 P Education 85 QA Human health activities 86 QB Residential care and social work activities 87-88 R Creative, arts and entertainment activities; libraries, archives, museums and other cultural activities 90-91 Gambling and betting activities; sports activities and amusement and recreation activities 92-93 Note—NACE Rev. 2. Before we leave the subject of NACE-defined industries, it must be said that in some countries there are industries with significant government or nonmarket production besides those listed in table 1. These tend to be industries that engage in activities not germane to our topic areas, Besides Public administration and defence, other industries in the table contain a mix of market and nonmarket producers. C. Jona-Lasinio SPINTAN 5 / 20
  • 6. Multiple measurement dimensions of Public intangibles !CHS!intangible!assets! Nonmarket!sector!4!industries! !Informa9on,! Scien9fic!and! Cultural!assets! Societal! Competencies! NA!intangibles!(So$ware,* R&D,*Mineral*explora4on)* Non!NA!intangibles!(Open* data,*Cultural*and*heritage,* including*design,*Brands,* Organiza4onal*capital,* Func4onBspecific*human* capital)* C. Jona-Lasinio SPINTAN 6 / 20
  • 7. Measuring nominal intangible investments PN Nt = N i=1 S s=1 (γown−account i,s,t λown−account i,s,t OwnCostIndicator i,s,t (1) + γpurchased i,s,t λpurchased i,s,t PurchasedIndicator i,s,t ) where: • PN Nt is nominal expenditure, in industry i and institutional sector s; • OwnCost and Purchased are time-series indicators of the own-account and purchased components of intangible investment; • λ indicates the adjustment to the time-series indicator that is needed to transform it to a sector-industry gross output (own-account) or gross spending measure. • γ is the capitalization factor, namely, a parameter that adjusts a spending measure to a measure of investment—a fraction of revenues or employee time, say, devoted to long-lived activities. C. Jona-Lasinio SPINTAN 7 / 20
  • 8. Intangible investment in the total economy: measures developed so far Two sets of intangible measures by industry and institutional sector: CHS type assets (Data and Trends) (Organizational capital (purchased and own account), Brands, Design, Training) • Geographical coverage: (AT, BE, DE, ES, FI, FR, IT, NL, SE, UK , US ) • Time coverage: 1995-2010 CHS type assets and NA intangibles (SOG analysis) • Geographical coverage: (DE, ES, FI, IT, UK) • Time coverage: 1995-2009 C. Jona-Lasinio SPINTAN 8 / 20
  • 9. Intangible shares of Total value added Overall selected intangible investment accounts for 8% to 3% of total value added with private and public sectors accounting on average for 5% and 0.8% respectively. C. Jona-Lasinio SPINTAN 9 / 20
  • 10. Intangible shares of Non-Market and Market value added In most advanced countries, US, UK and FI, nonmarket sector is more intangible intensive than the market sector. In the remaining countries it is the opposite (for these assets). But there is also interesting variation between countries. C. Jona-Lasinio SPINTAN 10 / 20
  • 11. Composition of intangible investment expenditure Organizational capital accounts for the largest share of intangible investment both in the nonmarket (45%) and market (35%) sector. C. Jona-Lasinio SPINTAN 11 / 20
  • 12. Organizational capital: shares in total market and nonmarket intangible investments On average purchased OC accounts for a larger share both in nonmarket and market sectors but shares varies considerably across countries and sectors. C. Jona-Lasinio SPINTAN 12 / 20
  • 13. Return to nonmarket capital • Once we have capitalized public intangibles we want to evaluate their contribution to productivity growth. • To achieve this goal we need to impute a net return to public investments. • A SPINTAN background paper by (Corrado and Jaeger, 2015) explores using the social rate of time preference (Feldstein, 1964; OECD 2009) as a relevant alternative for imputing a rate of return to government capital. • But at this stage we adopt the national accounts assumption of a zero nonmarket sector rate of return. C. Jona-Lasinio SPINTAN 13 / 20
  • 14. Sources of growth analysis • Adding national accounts intangibles (R&D, software, and artistic and entertainment originals plus mineral exploration) to the SPINTAN and INTAN-Invest measures of intangibles we are able to look at a fairly complete picture of intangible inputs to total production across a sample of advanced countries: • Finland, Germany, Italy, Spain, and the United Kingdom • Data sources: SPINTAN, INTAN-Invest and EUKLEMS • Contributions to labour productivity growth of market and nonmarket sectors. C. Jona-Lasinio SPINTAN 14 / 20
  • 15. Contributions to Labour Productivity Growth:1995-2009 The performance of advanced economies differs widely according to market versus nonmarket sector. In Germany, UK and Finland intangible capital is an important source of growth for the public sector. C. Jona-Lasinio SPINTAN 15 / 20
  • 16. Contributions to Labour Productivity Growth: 1995-2007 vs 2007-2009 At the very beginning of the financial crisis, intangible capital positively supported labour productivity growth of both market and non-market sectors in the advanced economies. C. Jona-Lasinio SPINTAN 16 / 20
  • 17. Total Factor Productivity Growth (1995-2007) and market and non-market intangible capital deepending contributions Fi NonM Fi Mkt UK NonM UK Mkt It NonM It Mkt De NonM DE Mkt Es NonM Es Mkt 01234 DlnTFP 0 .2 .4 .6 .8 Contrib DlnK(intang)/H Market and non-market DlnTFP De Es Fi It UK 01234 DlnTFP .2 .3 .4 .5 .6 .7 Contrib DlnK(intang)/H, Mkt Market DlnTFP De Es Fi It UK 01234 DlnTFP 0 .2 .4 .6 Contrib DlnK(intang)/H, Non-Mkt Market DlnTFP C. Jona-Lasinio SPINTAN 17 / 20
  • 18. Policy challenges • A primary characteristic of intangible capital, widely supported by growth accounting exercises and macroeconomic studies, is to be growth-promoting. • This is because intangible investments likely generate spillovers to the economic system being non-rival and possibly non-excludable. Such spillovers, if they exist, might be within the private sector and/or between the public and private sector. • In the light in particular of the claim and counter-claim around public sector austerity and fiscal policy in Europe, it would be vital to know which, if any, public sector intangibles had positive spillovers to the rest of the economy. C. Jona-Lasinio SPINTAN 18 / 20
  • 19. SPINTAN: Next steps • Complete the estimates of National Account Intangibles (R&D and Software) cross classified by industry and institutional sector. • Generate real measures of public intangible investments and net capital stocks. • Impute a rate of return to nonmarket capital. • Provide a deep investigation of mechanisms trough which the synergies between Public and Private sector affect economic growth. C. Jona-Lasinio SPINTAN 19 / 20
  • 20. Backup slides C. Jona-Lasinio SPINTAN 20 / 20