Is Manufacturing or Services Most Important for Intangible Investment in Sweden?

Harald Edquist

Project funded by the European Commission under the Seventh Framework Programme

Grant No 217512

Labor and total factor productivity growth in the business sector in EU-15, Japan and the US 1995–2007

Source: EU KLEMS (2009)

-1% 0% 1% 2% 3% 4% 5%

SpainItaly

DenmarkLuxembour

GermanyBelgiumPortugal

FranceNetherlands

AustriaJapan

UKUSA

GreeceSwedenFinlandIreland

TFP LP

Background• Recovery from crisis in the 1990s

• Market reforms in the 1980s

• Information and communication technology (ICT)

• High TFP growth

Corrado, Hulten and Sichel (2006) framework

• Computerized information(software and computerized databases)

• Innovative property(R&D, mineral explorations, copyright and license costs, product development in financial industries and design)

• Economic competencies(brand equity, firm specific human capital and organizational capital)

SourcesIntangible assets SourcesSoftware EU KLEMS

Research and development OECD ANBERD

Mineral exploration SGU

Copyright and license cost Statistics Sweden

Product development in financial industries

EU KLEMS

Design Statistics Sweden

Brand equity IRM, Statistics Sweden

Vocational training Statistics Sweden

Organizational capital Affärsvärlden, Statistics Sweden

Investment in intangibles in the Swedish business sector in 2006 was 292 bn SEK

Source: Edquist (2010)

63

125

104

Software

Innovative property

Economic competencies

Growth accounting for the Swedish business sector 1995–2004

Source: Edquist (2009)

0,3 0,3

1,31,1

0,30,3

1,3

1,8

0,9

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

Excluding intangibles Including intangibles

ICT tangible capital Non-ICT tangible capital Labor-quality

Intangible capital TFP

Contribution of intangible capital deepening to LP growth 1995–2004

38%

16%11%

9%

8%

7%

6%3% 1%1%0%

R&D

Design

Vocational training

Purchased OS

Computerized information

Advertisement

Own-account OS

Development costs in financialindustryMarket Research

Copyright and license costs

Mineral exploration

Source: Edquist (2009)

Questions

• Has investment in intangibles been driven by manufacturing or the service sector?

• What is the story in other countries?

Industry level methodIntangible assets SourcesSoftware Sector data available in EU-KLEMS

Research and development Sector data available in ANBERD

Mineral exploration Only investment in mining and quarrying

Copyright and license cost Turnover of industries producing entertainment, literacy and artistic originals

Financial innovation Only investment in financial industry

Design Use tables for purchased design and wage sums in different sectors for own-account design

Brand equity Use tables for advertising and market research

Vocational training Sector data provided by Statistics Sweden

Organizational capital Use tables for purchased OS and wages for managers at the industry level for own-account OS

Investment in intangibles for manufacturing and services in Sweden 2006 (bn SEK)

0

50

100

150

200

250

300

350

Intangible investment Tangible investment

Manufacturing Services

Source: Edquist (2009)

Investment in intangibles for manufacturing and services in Sweden in 2006 (bn SEK)

Source: Own calculations

0 20 40 60 80 100 120 140

Mining and quarrying (ISIC 10-14)

Hotels etc (ISIC 55)

Electricity, gas and water (ISIC 40-41)

Construction (ISIC 45)

Transport, storage and comm. (ISIC 60-64)

Finance and insurance (ISIC 65-67)

Wholesale and retail trade (ISIC 50-52)

Other services (ISIC 70-95)

Manufacturing (ISIC 15-37)

Intangible investment in manufacturing (bn SEK)

Source: Own calculations

0 10 20 30 40 50 60

Textiles etc (17-19)

Wood and other manufacturing (20, 36-37)

Food and beverages (15-16)

Pulp, paper, publishing etc (21-22)

Basic metals and metal products (26-28)

Rubber, petroleum, chmicals etc (23-25)

Transport equipment (34-35)

Machinery and equipment (29-33)

Investment in intangibles for manufacturing and the service sector in the Swedish business sector (bn SEK)

0 10 20 30 40 50 60 70

Mineral Explorations

Copyright and license cost

Financial innovation

Advertising

Vocational training

Brand equity

Design

Organizational structure

Computer Software

R&D

Services

Manufacturing

Source: Own calculations

R&D-investment by firms in 2007 (percent)

Source: Statistics Sweden

Investment in intangibles in four different countries 2000–2005 (percent of GDP)

Source: Clayton et al. (2009); Fukao (2009); van Rooijen-Horsten et al. (2008) and own calculations.

0%

1%

2%

3%

4%

5%

6%

7%

Japan Netherlands Sweden UK

Manufacturing

Services

Conclusions (I)• Total investment in intangibles was 292

bn SEK or 10 percent of GDP in 2006

• Intangibles accounted for 35 percent of the labor productivity growth in the Swedish business sector in 1995–2004

• Sweden was very intensive on R&D investment

Conclusions (II)Manufacturing – 44 percent of intangiblesServices – 51 percent of intangibles

• Manufacturing accounted for 82 percent of private sector investment in R&D, while the service sector invested more in all other categories of intangibles

• Intangible investment was large in Swedish manufacturing compared to other countries, while it was small in services in relative terms

Design (purchased) Turnover AED sectorEmployees with AED occupations

Total employees in AED sectorX=

Design

Design (own account)Design (purchased)

Wage bill of employees with AED occupations in the AED sector

X=Wage bill for employees with design occupations in the rest of the business sector

Purchased

Own Account

Source: Statistics Sweden

AED-occupations based on the Swedish Standard Classification of Occupations (SSYK)

Architects and town planners (SSYK 2141)

Civil engineers (SSYK 2142)

Electrical engineers (SSYK 2143)

Electronics and telecommunication engineers (SSYK 2144)

Mechanical engineers (SSYK 2145)

Chemical engineers (SSYK 2146)

Designers (SSYK 2456)

Decorators and commercial designers (SSYK 3471)

Intangible investment in manufacturing

Source: Own calculations

0 10 20 30 40 50 60

Textiles etc (17-19)

Wood and other manufacturing (20, 36-37)

Food and beverages (15-16)

Pulp, paper, publishing etc (21-22)

Basic metals and metal products (26-28)

Rubber, petroleum, chmicals etc (23-25)

Transport equipment (34-35)

Machinery and equipment (29-33)

Intangible investment

Tangible investment

Intangible investment in manufacturing

Source: Own calculations

0 10 20 30 40 50 60

Textiles etc (17-19)

Wood and other manufacturing (20, 36-37)

Food and beverages (15-16)

Pulp, paper, publishing etc (21-22)

Basic metals and metal products (26-28)

Rubber, petroleum, chmicals etc (23-25)

Transport equipment (34-35)

Machinery and equipment (29-33)

Intangible investment

Tangible investment