Intangible Investment and Productivity Growth 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

DenmarkLuxembourg

GermanyBelgiumPortugal

FranceNetherlands

AustriaJapan

UKUSA

GreeceSwedenFinlandIreland

LP TFP

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, vocational training and organizational capital)

Questions

• How large was intangible investment in Sweden?

• How large was intangible investment compared to other countries?

• How important is intangible investment for productivity growth?

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

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

Intangible investment in the business sector in 12 different countries in 2006 (percent of GDP)

Sources: Hao et al. (2009), Corrado et al. (2009), Marrano et al. (2009) och egna beräkningar.

0

2

4

6

8

10

12

14

Intangible investment in the Swedish business sector in 2006 (percent of GDP)

Source: Own calculations

0%

5%

10%

15%

20%

25%

Intangibleinvestment, 2006

Tangible investment,2006

Tangible investment,1960

Tangible andintangible

investment, 2006

Tangible and intangible investment in the business sector in 12 different countries 2006

Sources: Hao et al. (2009), Corrado et al. (2009), Marrano et al. (2009) och egna beräkningar.

0

5

10

15

20

25

30

35

Intangible investment

Tangible investment

∆ LP ∆ Capital labor ratio ∆ Labor quality=

Growth accounting

∆ TFP

∆ Other capital labor ratio

=

Excluding intangibles:

Including intangibles:

SK’ + SL’ +

∆ LP ∆ Intangible capital labor ratio

SKSR SL+ + +∆ Labor quality ∆ TFP

Decomposition of LP growth 1995–2004

Source: Edquist (2009)

0,3 0,3

1,3 1,1

1,30,3

0,31,8

0,9

0,0

1,0

2,0

3,0

4,0

5,0

Excluding intangibles Including intangibles

ICT tangible capital Non-ICT tangible capital Intangible capital

Labor quality TFP

Decomposition of LP growth 1995–2000

Source: Edquist (2009)

0,5 0,4

1,21,0

0,40,3

1,51,1

0,4

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

Excluding intangibles Including intangibles

ICT tangible capital Non-ICT tangible capital Labor-qualityIntangible capital TFP

Decomposition of LP growth 2000–2004

Source: Edquist (2009)

0,2 0,2

1,3 1,0

0,30,3

1,0

2,61,6

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Excluding intangibles Including intangibles

ICT tangible capital Non-ICT tangible capital Labor-quality

Intangible capital TFP

TFP in different countries excluding and including intangible capital in 1995–2004

Source: Edquist (2009)

Spain

Denm

ark

Italy

Germ

any

Greec

e

Japan

Austria

Finla

nd

France

Slova

kia

UK

Czech US

Sweden

-1.5

-1.0

-0.5

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

TFP - excluding intangible capital

TFP - including intangible capital

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)

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

Source: Statistics Sweden (2009)

44%

36%

20% 1-5 lagest firms

5-100 largest firms

All other firms

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)

Ratio of intangible to tangible investments in Swedish manufacturing and services 1995–2006

Source: Own calculations

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 20060.0

0.5

1.0

1.5

2.0

2.5

Manufacturing Services

Investment in intangibles by the Swedish services in 2006 (bn SEK)

Source: Own calculations

Hotels etc (ISIC 55)

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)

0 10 20 30 40 50 60 70 80 90

Intangible investment by Swedish 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

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

• Intangible investment was large in Sweden compared to many other OECD-countries

• 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 the service sector in relative terms