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Sources of country-sector productivity growth:
total factor productivity and intangible capital in the EU15
and the US
C. ...
Outline
• New country-industry (market and nonmarket) productivity
database (SPINTAN and INTAN-Invest)
• It makes possible...
Aim
• Sources of growth analysis for the total economy with a
complete accounting for intangible capital inputs:
market an...
Data
• Database with multiple dimensions: country, industry,
institutional sector, time
• Tangible and intangible assets (...
Market and nonmarket intangibles:
adjusted value added shares (2013)
Overall (market and nonmarket) intangible investments...
Tangible and intangible investment:
adjusted value added shares (2013)
In most advanced economies intangibles account for ...
Tangible and intangible investment over the business cycle:
EU+US
After the crisis, tangible investment experienced a prol...
Tangible and intangible investment over the business cycle:
EU vs US
The speed of recovery varied between EU and US.:
• In...
Sources of growth
∆lnQ
(a)
c,i,t = s
L(a)
c,i,m,t∆lnLc,i,m,t +s
K(a)
c,i,m,t∆lnKc,i,m,t +s
R(a)
c,i,m,t∆lnRc,i,m,t +∆lnAc,...
Sources of growth (1999-2013):
Non-farm business sector (i.e. excluding Agri, Ed, Health, PA)
In FI, UK and US intangible ...
Sources of growth (1999-2013): deviations from the US
All countries but UK show smaller growth contributions of intangible...
Sources of growth (1999-2013):
Nonmarket sector (i.e. PA, Ed, Health)
Contribution of intangible capital more relevant tha...
Capital reallocation Jorgenson and Schreyer (2010)
• We follow Jorgenson and Schreyer and use their accounting
framework, ...
Productivity growth and inputs reallocation
• TFPt = (DWTFP) + REALLK + REALLL
Define ContKben the contribution of capital ...
Capital reallocation: intuition
• We not expect the economy to be at the benchmark point all the
time.
• Rather, theory su...
Capital reallocation: intuition
• The main assumption is that if K Reallocation is > 0 this can be
interpreted as if capit...
Capital reallocation: all intangibles capitalised
SPINTAN 17 / 22
Capital reallocation: only NA intangibles are capitalised
SPINTAN 18 / 22
Investigating the drivers of capital reallocation
We investigate possible drivers of capital reallocation estimating the
f...
Capital reallocation: empirical results
(1) (2) (3) (4) (5) (6) (7) (8) (9) (10)
1997-2013 1997-2007 1997-2013 1997-2007
V...
Conclusions
• Creation of a country-industry-sector database for productivity
analysis that allows to account for the role...
Conclusions
• In most advanced economies intangible capital provides large
contribution both in the market and nonmarket s...
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Sources of country-sector productivity growth: total factor productivity and intangible capital in the EU15 and the US

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Sources of country-sector productivity growth: total factor productivity and intangible capital in the EU15 and the US. Society for Economic Measurement Annual Conference. July 2016. Thessaloniki

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Sources of country-sector productivity growth: total factor productivity and intangible capital in the EU15 and the US

  1. 1. Sources of country-sector productivity growth: total factor productivity and intangible capital in the EU15 and the US C. Corrado, (The Conference Board), New York J. Haskel, (Imperial College, CEPR and IZA), London C. Jona-Lasinio, (LUISS Lab and ISTAT), Rome M.Iommi, (LUISS Lab and ISTAT), Rome M.O’Mahony (King’s College), London Society for Economic Measurement Annual Conference 6-8 July 2016, Thessaloniki, Greece This project has received funding from the European Union’s Seventh Framework Programme for research, technological development and demonstration under grant agreement No. 612774 SPINTAN 1 / 22
  2. 2. Outline • New country-industry (market and nonmarket) productivity database (SPINTAN and INTAN-Invest) • It makes possible to develop new analysis on intangibles along multiple dimensions: • Theoretical and empirical investigation of the transmission mechanisms through which intangible capital affects total economy productivity growth. We analyze this issue looking at both the direct and indirect channels through which intangibles foster productivity growth across countries and between/within industries. • Investigate capital reallocation in a framework that includes intangible capital. SPINTAN 2 / 22
  3. 3. Aim • Sources of growth analysis for the total economy with a complete accounting for intangible capital inputs: market and nonmarket productivity performances. • Investigate the main factors that influenced capital reallocation over the financial crisis in a framework accounting for NA and Non NA Intangibles capital. • A central allegation levelled at the financial system since the financial crisis is that it is no longer functioning in a manner that allocates capital such that productivity can grow. • Whilst this suspicion is widespread, it has proved difficult to gather evidence to examine it. SPINTAN 3 / 22
  4. 4. Data • Database with multiple dimensions: country, industry, institutional sector, time • Tangible and intangible assets (NA, INTAN Invest and SPINTAN) • 20 industries (A-U Nace Rev 2), 1995-2013, so far 12 countries: • US • Big Northern Europe: DE, FR, UK • Scandinavian: DK FI, SE • Small Europe: AT, CZ, NL • Mediterranean: ES, IT SPINTAN 4 / 22
  5. 5. Market and nonmarket intangibles: adjusted value added shares (2013) Overall (market and nonmarket) intangible investments account for 14% to 6% of value added with market and nonmarket sectors accounting on average for 8% and 1.5% respectively. SPINTAN 5 / 22
  6. 6. Tangible and intangible investment: adjusted value added shares (2013) In most advanced economies intangibles account for a larger value added share than tangibles, the opposite holds for the less advanced. The differences in intangible intensity across countries mirror the industrial structure of the economies . SPINTAN 6 / 22
  7. 7. Tangible and intangible investment over the business cycle: EU+US After the crisis, tangible investment experienced a prolonged slowdown while intangible investment a small downturn and went back quickly to pre-crisis levels. SPINTAN 7 / 22
  8. 8. Tangible and intangible investment over the business cycle: EU vs US The speed of recovery varied between EU and US.: • Intangibles were relatively resilient during the crisis. • Intangibles recovered faster in the US and tangibles lagged behind in the EU. SPINTAN 8 / 22
  9. 9. Sources of growth ∆lnQ (a) c,i,t = s L(a) c,i,m,t∆lnLc,i,m,t +s K(a) c,i,m,t∆lnKc,i,m,t +s R(a) c,i,m,t∆lnRc,i,m,t +∆lnAc,i,m,t where: • c=country, i=industry, m=market-nonmarket sector, t=time • s = (Px X/PqQ) shares consistent with capitalized assets • L is labor input, K is tangible capital and R is intangible capital • TFP is a residual SPINTAN 9 / 22
  10. 10. Sources of growth (1999-2013): Non-farm business sector (i.e. excluding Agri, Ed, Health, PA) In FI, UK and US intangible capital provided relatively higher growth contribution than tangible capital. Country DlnQ ConDlnL ConDlnK NonICT ConDlnK ICT ConDlnK intan DlnTFP AT 2.2% 0.3% 0.4% 0.3% 0.5% 0.7% CZ 2.9% -0.2% 1.2% 0.4% 0.3% 1.2% DE 1.4% 0.0% 0.5% 0.2% 0.3% 0.4% DK 1.1% 0.1% 0.3% 0.3% 0.4% 0.1% ES 1.4% 0.5% 1.1% 0.3% 0.3% -0.8% FI 2.3% 0.3% 0.1% 0.1% 0.4% 1.3% FR 2.0% 0.3% 0.4% 0.1% 0.5% 0.7% IT 0.3% 0.1% 0.3% 0.2% 0.2% -0.3% NL 1.9% 0.2% 0.4% 0.1% 0.4% 0.7% SE 3.2% 0.3% 0.6% 0.4% 0.6% 1.3% UK 1.6% 0.0% 0.3% 0.1% 0.8% 0.3% US 2.3% -0.1% 0.4% 0.4% 0.8% 0.9% SPINTAN 10 / 22
  11. 11. Sources of growth (1999-2013): deviations from the US All countries but UK show smaller growth contributions of intangible capital than the US, even if at a different pace. SPINTAN 11 / 22
  12. 12. Sources of growth (1999-2013): Nonmarket sector (i.e. PA, Ed, Health) Contribution of intangible capital more relevant than contribution of tangible capital both in UK and US. DlnQ ConDlnL ConDlnK NonICT ConDlnK ICT ConDlnK intan DlnTFP AT 1.2% 0.6% 0.1% 0.3% 0.2% 0.1% CZ 0.0% -0.2% 0.7% 0.2% 0.1% -1.9% DE 1.1% 0.2% 0.4% 0.1% 0.2% 0.2% DK 0.5% 0.5% 0.2% 0.1% 0.1% -0.3% ES 2.8% 1.5% 0.9% 0.3% 0.2% -0.1% FI 0.5% 0.7% 0.4% 0.1% 0.0% -0.7% FR 1.2% 0.2% 0.2% 0.0% 0.1% 0.6% IT 0.2% 0.0% 0.3% 0.1% 0.1% -0.3% NL 1.8% 1.1% 0.2% 0.1% 0.2% 0.2% SE 0.7% 0.6% 0.4% 0.2% 0.1% -0.5% UK 1.8% 1.2% 0.5% 0.0% 0.6% -0.2% US 1.6% 1.2% 0.1% 0.0% 0.6% -0.3% SPINTAN 12 / 22
  13. 13. Capital reallocation Jorgenson and Schreyer (2010) • We follow Jorgenson and Schreyer and use their accounting framework, that directly links the reallocation of capital between industries and (total factor) productivity growth. • We do this using data from 11 countries, 1997-2013 and so can try to provide both cross-country evidence and data before and after the financial crisis. • The main concern is that capital is somehow not being allocated to the "right" sectors and this is impeding productivity growth. • To evaluate the degree of misallocation, a "benchmark" for productivity growth has to be identified (if capital were being allocated efficiently) and compare that to the current capital allocation. SPINTAN 13 / 22
  14. 14. Productivity growth and inputs reallocation • TFPt = (DWTFP) + REALLK + REALLL Define ContKben the contribution of capital obtained when K is allocated the "right" sectors, that is computed assuming rates of return across industries are equalised. Define ContKac the contribution of capital obtained assuming rates of return across industries varies. • REALLK = ContKac + ContKben SPINTAN 14 / 22
  15. 15. Capital reallocation: intuition • We not expect the economy to be at the benchmark point all the time. • Rather, theory suggests that if the market system is working well, capital will be drawn away from low return industries towards industries where rates of return are highest and this will equalise returns back towards the benchmark. • By contrast, a malfunctioning economy would be where capital is either moving towards low return industries, or is not being reallocated away from low return industries. SPINTAN 15 / 22
  16. 16. Capital reallocation: intuition • The main assumption is that if K Reallocation is > 0 this can be interpreted as if capital is growing in high rate of return industries and slowing in low return industries. • So the industries attracting capital will then deliver high capital services (a high product of capital rental payments and changes in capital) and industries losing capital low capital services, relative to the benchmark case. • In the benchmark case, all industries have the same rate of return. • Thus if REALLK is > 0 the expanding industries deliver relatively high capital services relative to the benchmark, since their capital growth is being calculated at a relatively high rate of return. SPINTAN 16 / 22
  17. 17. Capital reallocation: all intangibles capitalised SPINTAN 17 / 22
  18. 18. Capital reallocation: only NA intangibles are capitalised SPINTAN 18 / 22
  19. 19. Investigating the drivers of capital reallocation We investigate possible drivers of capital reallocation estimating the following specification: K (reall) c,t = α1δln(Intrate)c,t + α2Crisis + α3Expj c,t + α4Zi c,t + γc + c,t where Intrate is long term interest rate, Crisis is a dummy variable for 2008, Expj are indicators of economic sentiment, with j=ESI, Factors influencing investments (demand (Dem) and financial (Fin) , Zi are other controls for government support to investment and γc are country dummies. SPINTAN 19 / 22
  20. 20. Capital reallocation: empirical results (1) (2) (3) (4) (5) (6) (7) (8) (9) (10) 1997-2013 1997-2007 1997-2013 1997-2007 VARIABLES Interest rate -0.0016*** 0.0003 -0.0019*** -0.0036 -0.0018*** -0.0013** -0.0008* -0.0032*** -0.0025*** -0.0010 (0.0005) (0.0016) (0.0005) (0.0024) (0.0005) (0.0006) (0.0005) (0.0007) (0.0007) (0.0009) ESI 0.0026*** 0.0025 0.0032*** 0.0034* 0.0032*** 0.0036*** 0.0037*** 0.0063*** 0.0075*** 0.0052*** (0.0009) (0.0016) (0.0009) (0.0018) (0.0009) (0.0009) (0.0009) (0.0013) (0.0012) (0.0015) GOS_GDP -0.0058** -0.0072** -0.0078*** -0.0102*** -0.0069** -0.0110*** -0.0127*** -0.0080* -0.0158*** -0.0166*** (0.0023) (0.0030) (0.0026) (0.0035) (0.0027) (0.0024) (0.0025) (0.0042) (0.0038) (0.0039) Crisis -0.0007*** -0.0006*** -0.0006*** -0.0005*** -0.0005*** (0.0001) (0.0002) (0.0002) (0.0002) (0.0002) I grants_GDP 0.0003* 0.0003 0.0002 0.0008*** 0.0004* 0.0002 (0.0002) (0.0002) (0.0002) (0.0002) (0.0002) (0.0004) Demand conditions 0.0002* 0.0007*** (0.0001) (0.0002) Financial conditions 0.0001* 0.0002* (0.0001) (0.0001) Observations 187 121 170 110 169 129 116 109 79 70 Standard errors in parentheses *** p<0.01, ** p<0.05, * p<0.1 1997-2007 1997-2013 Exclude the USInclude the US SPINTAN 20 / 22
  21. 21. Conclusions • Creation of a country-industry-sector database for productivity analysis that allows to account for the role of tangible and intangible capital in the total economy (private and public). • Intangible and tangible investment show different sensitivity to the business cycle and across countries: by 2011, intangible growth paths in both EU and US had returned to pre-crisis levels while tangible growth rates recovered more slowly in the US . In the EU tangible gross fixed capital formation is still below pre-crisis levels. SPINTAN 21 / 22
  22. 22. Conclusions • In most advanced economies intangible capital provides large contribution both in the market and nonmarket sectors. It is a key variable for the recovery. • Reallocation terms indicate differing effects of financial crisis: positive reallocation suggests the presence of industries where capital grew relatively faster than the aggregate economy. SPINTAN 22 / 22

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