Nesta Working Paper 14/07
Issued: August 2014
JEL Classification: O47, E22, E01
Keywords: Innovation, Productivity Growth, Intangibles

Abstract

This paper provides an update of the Nesta Innovation Index for 2014, and tries to calculate some facts for the ‘knowledge economy’. Building on the work of Corrado, Hulten and Sichel (CHS, 2005/9), using new data sets and a new micro survey, we document UK intangible investment and see how it contributes to economic growth.

Regarding investment in knowledge/intangibles, we find (a) this is now 44 per cent greater than tangible investment, in 2011, £127bn and £88bn respectively; (b) R&D is about 13 per cent of total intangible investment, software 19 per cent, design 10 per cent, training and organizational capital both 20 per cent; (d) the most intangible-intensive industry is the information and communications industry, where intangible investment is 19 per cent of value added and (e) compared to the National Accounts, treating additional intangible expenditures as investment raises market sector value added growth in the 1990s and the early 2000s, but lowers growth in the late 2000s.

Regarding the contribution to growth, for 2005-11, (a) intangible capital deepening accounts for 14% of labour productivity growth, against computer hardware, 8 per cent; (b) TFP over the period was negative at -0.9 per cent pa.; (c) capitalising R&D adds 0.05 per cent to input growth and 0.02 per cent to output growth. On industries, manufacturing accounts for 35 per cent of intangible capital deepening in the UK market sector, information and communication accounts for 17 per cent, and financial services accounts for 14 per cent.

Authors
Peter Goodridge, Jonathan Haskel, Gavin Wallis