Extended abstract for possible inclusion in CAED Meeting, Tokyo, October 2nd -4th,2009

How Does Intangible Investment Affect International
Productivity Comparisons? Evidence from the US and UK*Carol Corrado
The Conference Board
Jonathan Haskel
Imperial College Business School, Imperial College London; CeRiBA, CEPR and IZACharles Hulten
University of Maryland and NBER
Keywords: intangibles, productivity, growth,
JEL reference: O47, O57, E01, O31
May 2009
Extended Abstract

This paper draws together two literatures. First, since at least the work of Nakamura(1999) and Corrado, Hulten and Sichel (2005, 6) there has been considerable interest
in intangible asset investment and the information therein on investment, innovationand growth. Important results from these macro studies are that including intangible
spending as investment raises GDP and changes the sources of growth.
Second, at the same time, there has been considerable interest in comparative
labour productivity behaviour, with endless heart searching in the US about theapparent disappearance of US productivity leadership and in the UK about the failureof UK productivity to mimic US levels. In the light of the concerns of this literature,
the inclusion of intangibles is a key one: if GDP levels change then the relative
pattern of productivity potentially changes and if the sources of productivity changethen this might shed a different light on the proximate causes of different relative
performance.
This paper incorporates intangibles into National Accounts in the US and UK
using the same methods and compares productivity, capital (both tangible andintangible) and total factor productivity levels between. We present results with andwithout the inclusion of intangibles to highlight the difference they make. We also
look at comparative intangible investment across the countries and the within-country
growth record with and without intangibles.

*Contact: Jonathan Haskel, Imperial College Business School, Imperial College, London SW7 2AZ,j.haskel@ic.ac.uk. We are very grateful for financial support for this research from the COINVEST
project, www.coinvest.org.uk, funded by the European Commission FP7, Theme 9, Socio-economic
Science and Humanities, grant number 217512. This work contains statistical data from ONS which iscrown copyright and reproduced with the permission of the controller HMSO and Queen's Printer forScotland. The use of the ONS statistical data in this work does not imply the endorsement of the ONS
in relation to the interpretation or analysis of the statistical data.

To the best of our knowledge, this is the first paper to make a levels
comparison with intangibles. Work by Hao, Manole and Van Ark (2008) has
compared within-country growth due to intangibles for a range of EU countries, but
has not looked at the comparison of productivity levels.
Whilst this work is macro based, we believe it would be of interest to CAED
participants for the following reasons. First, it is comparative which the call forpapers mentions. Second, many of the macro measures are based on micro data ofinterest to CAED researchers, such as occupational data of managers and designers.
Third, there has been discussion at previous CAED conferences on intangibles.
At time of writing our results are very preliminary, subject to change andshould not be quoted. They are as follows.
1. Without intangibles, value added per hour worked in the UK has beencatching up that in the US, to a gap of around 50 log points in 2000 (i.e.
ln(V/L)US- ln(V/L)UK =0.50; the magnitude of the gap depends crucially on
the PPPs chosen as we demonstrate, here we use use Groningen PPPs; ifwe use PPPs used by other papers in the literature we get very similargaps.)
2. With intangibles, GDP in both countries rises. Our main result here is thatit rises by about the same in both countries, so that the gap and changes init, look very much the same as the no intangibles case.
3. The TFP gap however does change. Without intangibles, there is a gap
TFP gap of about 44 log points. But incorporating intangibles reduces that
gap to about 34 log points. So accounting for intangibles is informative, atleast to some extent, about the proximate causes of the productivity gap.
4. The extra information from intangibles reveals that tangible or software
capital does not explain much of the productivity gap either with our
without intangibles, since the UK has more or less caught up to the US in
tangible and software capital per hour work. But the US employs moreintangible capital in the form of innovative property and economic
competencies per hour worked, reflecting in particular, leadership inscientific R&D and organisational capital.
References
Corrado, C., Hulten, C. and Sichel, D. (2005). ‘Measuring Capital and Technology: An ExpandedFramework’, in Measuring Capital in the New Economy, edited by C. Corrado, J. Haltiwanger andD. Sichel, National Bureau of Economic Research Studies in Income and Wealth, Vol. 65, pp. 1145, The University of Chicago Press, Chicago and London.
Corrado, C. Hulten, C. and D. Sichel (2006). ’Intangible Capital and Economic Growth’, Review ofIncome and Wealth, forthcoming
Hao, J., Manole, V. and van Ark, B 2008, Intangible Capital and Growth — An International
Comparison, Economics Program Working Paper Series, EPWP #08 - 14, The Conference Board,New York, December
Inklaar, R. and Timmer, M.P. (2008). ‘GGDC Productivity Level Database: International Comparisonsof Output, Inputs and Productivity at the Industry Level’, Groningen Growth and Development
Centre Research Memorandum GD-104, Groningen: University of Groningen, September 2008.
http://www.ggdc.net/databases/levels.htm.
Nakamura, L. (1999). “Intangibles: what to put the New in the New economy?” Federal Reserve Bankof Philadelphia Business review (July/August): 3-16