Transfer Pricing Associates

Intangible Assets, Productivity and ICT

post Wednesday October 17, 2012

Danilo Rizzuti

The Information and Communications Technology industry has been an important economic driver since the 1990’s. Recently, another driver has emerged: intangible capital. According to recent studies, it has been the largest systematic driver of economic growth in business sector output for the past 50 years and more and more companies are investing in intangibles more than they are in traditional fixed assets.

The full benefits of new technologies can be obtained when combining it with organizational changes, appropriate worker skills and intangible assets.

In a study by Corrado et al, they aim to find the mechanism by which intangible capital affects productivity growth, testing for both direct and indirect contributions from intangibles to productivity growth as well as interactions with other variables in influencing average labor productivity growth. The study covers Austria, Denmark, Finland, France, Germany, Italy, The Netherlands, Spain, Sweden, the UK and the US, 26 different industries and data spanning from 1995-2007.

In the study, they include several forms of intangible capital, under which; R&D, training, organizational capital and architectural and engineering design. Their results show that a country that has higher ICT intensity has an increased labor productivity of 0.4-0.5% over a country with lower ICT intensity. They see that the direct effects of intangibles have a significant effect on the productivity growth of a country, even when taking into account other factors such as spillover effect, omitted variables, reverse causality and measurement errors. Lastly, they also find that training and design have stronger effects on productivity growth differentials as compared to other intangibles.

The study supports the notion of the importance of intangible assets and how to adequate combine it with ICT to obtain maximum benefits. The United States is one of the countries that is really trying to reap the benefits of intangibles, showing an increased investment from 13% in 2000 to 15.5% in 2008 and a subsequently decrease in tangibles investment from 13% in 2000 to 9.5% in 2008.

Source: Harvard Economics

Image Source: Free Digital Photos

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