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What Happened To The Knowledge Economy? Ict, Intangible Investment, And Britain'S Productivity Record Revisited

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  • Mauro Giorgio Marrano
  • Jonathan Haskel
  • Gavin Wallis

Abstract

Despite the apparent importance of the "knowledge economy," U.K. macroeconomic performance appears unaffected: investment rates are flat, and productivity has slowed. We investigate whether measurement issues might account for this puzzle. The standard National Accounts treatment of most spending on "knowledge" or "intangible" assets is as intermediate consumption. Thus they do not count as either GDP or investment. We ask how treating such spending as investment affects some key macro variables, namely, market sector gross value added (MGVA), business investment, capital and labor shares, growth in labor and total factor productivity (TFP), and capital deepening. We find: (a) MGVA was understated by about 6 percent in 1970 and 13 percent in 2004; (b) instead of the business investment/MGVA ratio falling since 1970 it has been rising; (c) instead of the labor share being flat since 1970 it has been falling; (d) growth in labor productivity and capital deepening has been understated and growth in TFP overstated; and (e) TFP growth has not slowed since 1990 but has been accelerating. Copyright 2009 The Authors. Journal compilation International Association for Research in Income and Wealth 2009.

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Article provided by International Association for Research in Income and Wealth in its journal Review of Income and Wealth.

Volume (Year): 55 (2009)
Issue (Month): 3 (09)
Pages: 686-716

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Handle: RePEc:bla:revinw:v:55:y:2009:i:3:p:686-716

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  1. Mauro Giorgio Marrano & Jonathan Haskel, 2006. "How Much Does the UK Invest in Intangible Assets?," Working Papers 578, Queen Mary, University of London, School of Economics and Finance.
  2. Carol Corrado & Charles Hulten & Daniel Sichel, 2006. "Intangible capital and economic growth," Finance and Economics Discussion Series 2006-24, Board of Governors of the Federal Reserve System (U.S.).
  3. Ark, Bart van, 2002. "ICT investments and growth accounts for the European Union," GGDC Research Memorandum 200256, Groningen Growth and Development Centre, University of Groningen.
  4. Venetia Bell & Pablo Burriel-Llombart & Jerry Jones, 2005. "A quality-adjusted labour input series for the United Kingdom (1975-2002)," Bank of England working papers 280, Bank of England.
  5. Gavin Wallis, 2009. "Capital Services Growth in the UK: 1950 to 2006," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 71(6), pages 799-819, December.
  6. Timmer, Marcel P. & Ypma, Gerard & Ark, Bart van der, 2003. "IT in the European Union: driving productivity divergence?," GGDC Research Memorandum 200363, Groningen Growth and Development Centre, University of Groningen.
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