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Intangible capital and productivity: Firm-level evidence from German manufacturing

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  • Kaus, Wolfhard
  • Slavtchev, Viktor
  • Zimmermann, Markus

Abstract

We study the importance of intangible capital (R&D, software, patents) for the measurement of productivity using firm-level panel data from German manufacturing. We first document a number of facts on the evolution of intangible investment over time, and its distribution across firms. Aggregate intangible investment increased over time. However, the distribution of intangible investment, even more so than that of physical investment, is heavily right-skewed, with many firms investing nothing or little, and a few firms having very large intensities. Intangible investment is also lumpy. Firms that invest more intensively in intangibles (per capita or as sales share) also tend to be more productive. In a second step, we estimate production functions with and without intangible capital using recent control function approaches to account for the simultaneity of input choice and unobserved productivity shocks. We find a positive output elasticity for research and development (R&D) and, to a lesser extent, software and patent investment. Moreover, the production function estimates show substantial heterogeneity in the output elasticities across industries and firms. While intangible capital has small effects for firms with low intangible intensity, there are strong positive effects for high-intensity firms. Finally, including intangibles in a gross output production function reduces productivity dispersion (measured by the 90-10 decile range) on average by 3%, in some industries as much as nearly 9%.

Suggested Citation

  • Kaus, Wolfhard & Slavtchev, Viktor & Zimmermann, Markus, 2020. "Intangible capital and productivity: Firm-level evidence from German manufacturing," IWH Discussion Papers 1/2020, Halle Institute for Economic Research (IWH).
  • Handle: RePEc:zbw:iwhdps:12020
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    Cited by:

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    2. Axenbeck, Janna & Niebel, Thomas, 2021. "Climate Protection Potentials of Digitalized Production Processes: Microeconometric Evidence," 23rd ITS Biennial Conference, Online Conference / Gothenburg 2021. Digital societies and industrial transformations: Policies, markets, and technologies in a post-Covid world 238007, International Telecommunications Society (ITS).
    3. Matej Bajgar & Chiara Criscuolo & Jonathan Timmis, 2021. "Intangibles and industry concentration: Supersize me," OECD Science, Technology and Industry Working Papers 2021/12, OECD Publishing.
    4. Marie Le Mouel & Alexander Schiersch, 2020. "Knowledge-Based Capital and Productivity Divergence," Discussion Papers of DIW Berlin 1868, DIW Berlin, German Institute for Economic Research.
    5. Carolina Hintzmann & Josep Lladós-Masllorens & Raul Ramos, 2021. "Intangible Assets and Labor Productivity Growth," Economies, MDPI, vol. 9(2), pages 1-21, May.
    6. Caggese, Andrea & Pérez-Orive, Ander, 2022. "How stimulative are low real interest rates for intangible capital?," European Economic Review, Elsevier, vol. 142(C).
    7. Grégory Claeys & Maria Demertzis, 2021. "The productivity paradox- policy lessons from MICROPROD," Policy Contributions 40536, Bruegel.

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    More about this item

    Keywords

    intangible capital; productivity; production functions;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O30 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - General

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