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
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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.
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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.
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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
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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.
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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 .
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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.
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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.
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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
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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%
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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.
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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%
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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.
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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
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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.
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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.
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17. Capital reallocation: all intangibles capitalised
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18. Capital reallocation: only NA intangibles are capitalised
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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.
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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
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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.
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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.
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