Can Intangible Investment Explain the UK Productivity Puzzle?

an article by Peter Goodridge (Imperial College Business School, UK), Jonathan Haskel (Imperial College Business School, UK and CEPR, IZA) and Gavin Wallis (University College London, UK and Bank of England) published in National Institute Economic Review Volume 224 Number 1 (May 2013)

Abstract

This paper investigates whether intangibles might explain the UK productivity puzzle.

We note that since the recession:

1. firms have upskilled faster than before;
2. intangible investment in R&D and software has risen whereas tangible investment has fallen; and
3. intangible and telecoms equipment investment slowed in advance of the recession.

We have therefore tested to see if:

1. what looks like labour hoarding is actually firms keeping workers who are employed in creating intangible assets; and
2. the current slowdown in TFP growth is due to the spillover effects of the past slowdown in R&D and telecoms equipment investment.

Our main findings are:

1. measured market sector real value added growth since the start of 2008 is understated by 1.6 per cent due to the omission of intangibles; and
2. 0.75 per cent per annum of the TFP growth slowdown can be accounted for by the slowdown in intangible and telecoms investment in the early 2000s.

Taken together intangible investment can therefore account for around 5 percentage points of the 16 per cent productivity puzzle.

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