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Can Intangible Investment Explain the UK Productivity Puzzle?

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  • Peter Goodridge

    ()
    (Imperial College Business School.)

  • Jonathan Haskel

    ()
    (Imperial College Business School and CEPR, IZA.)

  • Gavin Wallis

    ()
    (University College London and Bank of England.)

Abstract

This paper investigates whether intangibles might explain the UK productivity puzzle. We note that since the recession: (a) firms have upskilled faster than before; (b) intangible investment in R&D and software has risen whereas tangible investment has fallen; and (c) intangible and telecoms equipment investment slowed in advance of the recession. We have therefore tested to see if: (a) what looks like labour hoarding is actually firms keeping workers who are employed in creating intangible assets; and (b) the current slowdown in TFP growth is due to the spillover effects of the past slowdown in R&D and telecoms equipment investment. Our main findings are: (a) measured market sector real value added growth since the start of 2008 is understated by 1.6 per cent due to the omission of intangibles; and (b) 0.75 per cent per annum of the TFP growth slowdown can be accounted for by the slowdown in intangible and telecoms investment in the early 2000s. Taken together intangible investment can therefore account for around 5 percentage points of the 16 per cent productivity puzzle.

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Bibliographic Info

Article provided by National Institute of Economic and Social Research in its journal National Institute Economic Review.

Volume (Year): 224 (2013)
Issue (Month): 1 (May)
Pages: R48-R58

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Handle: RePEc:sae:niesru:v:224:y:2013:i:1:p:r48-r58

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Keywords: Intangible investment; productivity;

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  1. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46 National Bureau of Economic Research, Inc.
  2. John Fernald, 2014. "Productivity and Potential Output Before, During, and After the Great Recession," NBER Working Papers 20248, National Bureau of Economic Research, Inc.
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Cited by:
  1. John Buckell & Andrew Smith & Roberta Longo & David Holland, 2013. "Health inefficiency and unobservable heterogeneity - empirical evidence from pathology services in the UK National Health Service," Working Papers 1307, Academic Unit of Health Economics, Leeds Institute of Health Sciences, University of Leeds.
  2. Barnett, Alina & Batten, Sandra & Chiu, Adrian & Franklin, Jeremy & Sebastia-Barriel, Maria, 2014. "The UK productivity puzzle," Bank of England Quarterly Bulletin, Bank of England, vol. 54(2), pages 114-128.
  3. Nicholas Oulton, 2013. "Medium and Long Run Prospects for UK Growth in the Aftermath of the Financial Crisis," CEP Occasional Papers 37, Centre for Economic Performance, LSE.
  4. Joao Paulo Pessoa & John Van Reenen, 2013. "The UK Productivity and Jobs Puzzle: Does the Answer Lie in Labour Market Flexibility?," CEP Special Papers 31, Centre for Economic Performance, LSE.
  5. Richard Blundell & Claire Crawford & Wenchao (Michelle) Jin, 2013. "What can wages and employment tell us about the UK's productivity puzzle?," IFS Working Papers W13/11, Institute for Fiscal Studies.
  6. Barnett, Alina & Chiu, Adrian & Franklin, Jeremy & Sebastia-Barriel, Maria, 2014. "The productivity puzzle: a firm-level investigation into employment behaviour and resource allocation over the crisis," Bank of England working papers 495, Bank of England.

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