Post on 04-Jan-2016
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Innovation, Intangibles and Economic Growth: Towards a Comprehensive Accounting
of the Knowledge Economy
Bart van Ark*University of Groningen
and The Conference Board
Seminar on Measurement of Capital – Beyond the Traditional Measures
Conference of European Statisticians12 June 2007, Geneva
* In co-operation with Charles Hulten, University of Maryland and The Conference Board
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Grab your iPod, flip it over, and read the script at the bottom. It says: "Designed by Apple in California. Assembled in China." Where the gizmo is made is immaterial to its popularity. It is great design, technical innovation, and savvy marketing that have helped Apple Computer sell more than 40 million iPods. Yet the folks at the BEA don't count what Apple spends on R&D and brand development, which totaled at least $800 million in 2005. Rather, they count each iPod twice: when it arrives from China, and when it sells. That, in effect, reduces Apple -- one of the world's greatest innovators -- to a reseller of imported goods.
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Do the Official Statistics Capture the Knowledge Economy?
How do we measure innovation? New ways of making current products better, faster,
cheaper Creating something not previously created
Is the impact of innovations accurately represented in official statistics on national income and productivity? NO !! “You see the computers everywhere except in the
productivity data.” Solow (1987) Official statistics “miss the most important technological
revolutions in history.” Nordhaus (1997) Hence: “Whilst the knowledge economy is
all around us, it is still hard to see it in the official statistics” Skepticism about GDP, CPI and productivity statistics
capturing key components of the knowledge economy
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National Accounts Framework Provides Adequate Point of Departure
Basic solutions require rethinking of: The scope of national accounts on output side The measurement of output in particular in services The measurement of prices to capture product quality Consistency of output and input measures to provide
productivity The treatment of inputs in terms of expenditure versus
investment Development of growth accounts in conjunction
to national accounts is key KLEMS framework Measurement of intangibles
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Basic Determinants of Sources of Growth/ Growth Accounts Model
Output is key measure of standard of living Output is driven by
capital (K) labor (L) intermediate inputs (E, M, S) productivity (LP, MFP)
Capital and labor can by divided into quantity quality/composition
Output increases that cannot be explained by these “inputs” are attributed to multifactor productivity (MFP)
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EU KLEMS Growth and Productivity Accounts Complements National Accounts
EU KLEMS is analytical research database, based on national accounts and complementary official sources (LFS and production statistics)
Long time coverage 1970-2004, with greatest detail for post-1995
Harmonized industry classification, capital and labour input, deflation and industry aggregations (e.g. market economy, market services)
Decomposition of capital and labour input: Capital assets in 7 asset types Labour input in 18 categories (3 x skill; 3 x age; gender)
Broad coverage of EU countries and comparisons with U.S. and Japan
Public database: www.euklems.net
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EU15ex USA-SIC Japan EU15ex USA-SIC Japan
Hours worked
1995-20041980-1995
Growth in Quantity of Standard Factor Inputs Accounts for only Small Part of Real GDP Growth in Market Economy
EU15ex excludes Portugal, Luxembourg, Ireland, Sweden and Greece
Growth in Quantity of Standard Factor Inputs Accounts for only Small Part of Real GDP Growth in Market Economy
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EU15ex USA-SIC Japan EU15ex USA-SIC Japan
Hours worked Non-ICT Capital
1995-20041980-1995
Even in the Traditional Growth Accounts System the Knowledge Economy Features Strongly but Unequal
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EU15ex USA-SIC Japan EU15ex USA-SIC Japan
Hours worked Non-ICT Capital ICT Capital
1995-20041980-1995
Even in the Traditional Growth Accounts System the Knowledge Economy Features Strongly but Unequal
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EU15ex USA-SIC Japan EU15ex USA-SIC Japan
Hours worked Non-ICT Capital
ICT Capital Labour Composition
1995-20041980-1995
Even in the Traditional Growth Accounts System the Knowledge Economy Features Strongly but Unequal
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EU15ex USA-SIC Japan EU15ex USA-SIC Japan
Hours worked Non-ICT CapitalICT Capital Labour CompositionMFP
1995-20041980-1995
The knowledge economy
Fast Growing Countries Get Bigger Bang from Knowledge Economy, Notably MFP
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GER ITA LUX DNK BEL FRA AUT NLD SWE UK ESP USA FIN
Hours worked Non-ICT CapitalICT Capital Labour CompositionMFP
Unmeasured intangible capital is hidden in MFP
a) Physical Capitala1) ICT capital (IT hardware, communications equipment)a2) Other capital (plant, machinery, buildings)
b) Human Capitalb1) Formal Educationb2) Company training
c) Knowledge Capitalc1) Research and Developmentc2) Patentsc3) Licenses, brands, copyrightsc3) Other technological innovations, not related to b1) to b3)[c4) Software]*c5) Mineral Explorationc6) Experience
d) Process Capitald1) Engineering designd2) Organisation designd3) Construction and use of data basesd4) Remuneration of innovative ideas
e) Customer Capitale1) Marketing of new products
f) Multi Factor Productivity (residual)
As long as intangibles capital remain unmeasured, its productivity effects are hidden in MFP
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Corrado, Hulten and Sichel (CHS, 2005) calculated intangible investment in U.S.
Inherent measurement difficulties of intangible capital going beyond those of tangible capital as follows: The knowledge-input problem The knowledge-investment problem The quality improvement problem The obsolescence problem (Howell, 1996)
But no clearcut distinction between tangibles and intangibles that justify a distinction between capitalizing and expensing
“Any outlay than is intended to increase future rather than current consumption is treated as a capital investment”
Source: Corrado, Hulten and Sichel (2005)
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CHS (2005) measure $1.2 trillion of intangible investment in U.S. nonfarm
business, 1998-2000
COMPUTERIZED INFORMATION ($154,$154) COMPUTER SOFT WARE ($151) COMPUTERIZED DATABASES ($3)
SCIENTIFIC AND CREATIVE PROPERTY ($424,$424) SCIENTIFIC R&D ($184) MINERAL EXPLORATION ($18) COPYRIGHT AND LICENCE COSTS ($75) OTHER PRODUCT DEVELOPMENT (FINANCE, ARCHIT.)
($149)
ECONOMIC COMPETENCIES ($642,$505) BRAND EQUITY (ADVERTISING) ($236) FIRM-SPECIFIC HUMAN CAPITAL (TRAINING) ($116) ORGANIZATIONAL STRUCTURE MANANGEMENT
CONSULTING, PLANNING ETC.) ($291)
Source: Corrado, Hulten and Sichel (2005)
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When including intangibles, investment share in U.S. GDP holds up
Source: Corrado, Hulten and Sichel (2005)
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… but the difference in growth rates arises from firm specific resources, not R&D
Source: Corrado, Hulten and Sichel (2005)
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Results for U.S. Economy, 2000-03
Source: Corrado, Hulten and Sichel (2005)
(70.4%)
(29.6%)
(60%)
(25%)
(15%)
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When including intangibles in growth accounts the weight on capital raises
Source: Corrado, Hulten and Sichel (2006)
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MFPMFP
L QUAL
L QUAL
INTANGIT CAP
IT CAP
2.78%3.09%
25%
11% 14%
50%
19%
8% 11%
35%
27%
SOURCES OF GROWTH IN OUTPUT PER HOUR
NFB 1995-2003
WITHOUTINTANGIBLES
WITHINTANGIBLES
Source: Corrado, Hulten and Sichel (2006)
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MFPMFPMFP
L QUAL
INTANG
IT CAP
IT CAP1.63%
3.09%
18% 15% 15% 25%
19%
8% 11%
35%
27%
SOURCES OF GROWTH IN OUTPUT PER HOUR NON-FARM BUSINESS SECTOR
MFP
L QUAL
IT CAP
INTANG 26%
1973-1995 1995-2003Source: Corrado, Hulten and Sichel (2006)
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MFPMFP
0.43%
0.84%
12% 19% 9% 30%
10%
17%
10%
32%
32%
CONTRIBUTION OF DIFFERENT INTANGIBLES TO ANNUAL CHANGE IN LABOR PRODUCTIVITY
FIRM SPECL QUAL
SOFTWARE 28%
1973-1995 1995-2003
SCI R&D
BRANDN SCI R&D
SOFTWARE
SCI R&D
N SCI R&D
BRAND
FIRM SPEC
Source: Corrado, Hulten and Sichel (2006)
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The Research Program on Intangibles
Extend studies to more countries UK: Haskell and Marrano Japan: Fukao et al. Ongoing work for Finland, France and Netherlands
Price and output statistics that explicitly recognize product innovations (“quality” change).
Uncover the subtleties of interaction between tangibles/intangibles and innovation/productivity growth
A stronger link in the data between human capital and worker competencies
More detailed study at industry level (mnf/services) Intangibles need more accurately represented in
the financial data of the innovators themselves
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The Role of National Statistical Institutes Intangible accounting is in early days, but
statistical description of knowledge economy is too far removed from reality to ignore
Official statistics need to be as precise as possible … but it is sometimes better to be “imprecisely
right than precisely wrong” (Keynes) … requiring a balance between research and
official statistics NSI’s could help to:
develop concepts of intangibles set (international) standards for measurement provide value metrics of intangibles, e.g., survey metrics
on innovation with quantitative magnitudes. Transfer experimental and research based measures into
national accounts satellites that can help to move the measurement agenda forward