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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

    (Queen Mary, University of London and CeRiBA)

  • Jonathan Haskel

    (Queen Mary, University of London, AIM, CeRiBA, CEPR and IZA)

  • Gavin Wallis

    (University College London)

Abstract

A major puzzle is that despite the apparent importance of innovation around the "knowledge economy", UK macro performance appears unaffected: investment rates are flat, and productivity has slowed down. We investigate whether measurement issues might account for the 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 labour shares, growth in labour and total factor productivity, and capital deepening. We find (a) MGVA was understated by about 6% in 1970 and 13% in 2004 (b) instead of the nominal business investment/MGVA ratio falling since 1970 it is has been rising (c) instead of the labour compensation/MGVA ratio being flat since 1970 it has been falling (d) growth in labour productivity and capital deepening has been understated and growth in total factor productivity overstated (e) total factor productivity growth has not slowed since 1990 but has been accelerating.

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Bibliographic Info

Paper provided by Queen Mary, University of London, School of Economics and Finance in its series Working Papers with number 603.

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Date of creation: Jun 2007
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Handle: RePEc:qmw:qmwecw:wp603

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Keywords: Intangible assets; Productivity; R&D; Training; Organisational capital; Investment;

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  1. Giorgio Marrano, Mauro & Haskel, Jonathan, 2007. "How Much Does the UK Invest in Intangible Assets?," CEPR Discussion Papers 6287, C.E.P.R. Discussion Papers.
  2. Carol A. Corrado & Charles R. Hulten & Daniel E. Sichel, 2006. "Intangible Capital and Economic Growth," NBER Working Papers 11948, National Bureau of Economic Research, Inc.
  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. 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.
  6. 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.
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