The importance of intangible capital in productivity and economic growth

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Journal Title

Journal ISSN

Volume Title

School of Business | Master's thesis

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Date

2023

Department

Taloustieteen laitos

Major/Subject

Mcode

Degree programme

Economics

Language

en

Pages

61 + 4

Series

Abstract

The recent weak growth of labor productivity, especially in Finland and OECD countries, has been a disappointment. One reason could be the inaccurate measurement of intangible assets in the national accounting framework. While intangible investments have a significant impact on economic growth, a considerable share of intangible assets are excluded from the current national accounting system. Economists, statisticians, and accountants have long underestimated the value of intangible assets, for instance brand recognition, R&D, and business processes, because of their complexity of determining their worth. This paper examines recent research concerning the relationship between labor productivity growth and intangible asset investments. It summarizes the main results at country, industry, and firm levels, indicating the increasing significance of intangible asset investments for explaining the dynamics of labor productivity. Furthermore, the literature suggests that businesses need to complement their investments in artificial intelligence (AI) and information and communication technology (ICT) by investing in intangible assets to fully benefit from these new technologies. Additionally, this study aims to replicate Corrado et al.'s (2018) research on the effects of intangible investment on productivity utilizing the new EUKLEMS & INTANProd productivity database, which includes estimates of all the intangible assets. The study focuses on the impact of intangible investments on economic and productivity growth. The findings reveal that investments in all intangible asset categories–software, innovative property, and economic competencies–play an increasingly vital role in explaining labor productivity growth. Countries like Sweden, with high investments in various dimensions of intangible assets, exhibit higher labor productivity growth. The study also highlights the complementary nature of different intangible assets, which contribute the most when investments are made across all dimensions. This study emphasizes the need to include all intangible assets in the national accounting framework to provide a more accurate representation of capital investment and labor productivity growth. Policymakers should recognize the importance of intangible value creation and implement policies that support and encourage investment in intangible assets. Overall, the study confirms that intangible investments have a decisive and positive influence on economic growth. Based on the extensive economic literature reviewed, this paper also concludes the significant role of intangible investments in the development of knowledge-based economies.

Description

Thesis advisor

Toivanen, Otto

Keywords

intangible capital, labor productivity growth, total factor productivity growth, growth accounting

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Citation

Permanent link to this item

https://urn.fi/URN:NBN:fi:aalto-202306183969

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[gradu] Kauppakorkeakoulu / BIZ