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The Knowledge Economy, Intangible Investment and Growth. Jonathan Haskel Imperial College Business School, Imperial College London British Embassy, Berlin 17 th June 2011. Can Europe grow out of trouble? The enduring productivity deficit.

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The Knowledge Economy, Intangible Investment and Growth

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The Knowledge Economy, Intangible Investment and Growth

Jonathan Haskel

Imperial College Business School,

Imperial College London

British Embassy, Berlin 17th June 2011

Can Europe grow out of trouble? The enduring productivity deficit

Source: EUKLEMS and The Conference Board

The R&D deficit…

Source: OECD STI indicators

…and now with China

Source: OECD STI indicators

Driving growth in knowledge economies

  • GDP per worker driven by

    • Physical capital deepening

      • Within the firm: ICT

      • Outside the firm: infrastructure

    • Human capital deepening

      • General education of labour force

      • Immigration

    • Ideas/innovation/intangible capital deepening

      • Use of ideas

        • Within the firm: investment

          • in R&D

          • and non-R&D (software, design, training, branding, organisation)

        • From outside the firm: open innovation

So, why is Europe lagging?

  • Composition

    • Larger public sector in Europe brings average down?

    • Too much financial services?

  • Physical capital?

    • Lower computer adoption?

  • Human capital?

  • Ideas/Innovation/Intangible capital?

    • Low R&D. But is R&D the whole story?

Measuring all intangible investment

  • Knowledge investment is more than just R&D

    • Software

    • Innovative property

      • Scientific R&D

      • Design

      • Financial services product development

      • Artistic originals

    • Economic competencies

      • Marketing

      • Training

      • Firm organisational capital

Intangible/tangible investment varies significantly across countries

Source: OECD/COINVEST project

How does composition of intangible investment vary?(Investment by intangible assetshare in GDP, 2005 selected countries)

Source: OECD/COINVEST project

Manufacturing is not manufacturing any more…


Knowledge is the key to growth(growth accounting, 1995-06)

Source: OECD/COINVEST project


Strict employment protection correlated with low intangible investment…


…as is many days to start a business.


Government R&D can help…


…and note that strictness positively correlated with tangibles. ….



  • Key importance of knowledge

    • Knowledge = Intangibles and TFP = major contributors to growth

    • It’s not just R&D

    • Manufacturing is not manufacturing any more

  • Policy : what not to do

    • Stop obsessing about manufacturing and just R&D

  • Policy: what to do

    • All investment needs long term tax and regime certainty. Bank regulation?

    • Government Science Budgets and public R&D will help

    • Employment regulation

      • Part of overall social contract

      • Helps tangibles, hurts intangibles

      • So the choice: do we want growth from catch-up or innovation?


Manufacturing: Ge leads, but mostly intermediates. Sw intangible based

Retail: Sw leads. TFP important

FinBizServices: UK lead, intangibles important

Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Fukao et al. (2009) for Japan, Edquist (2009) for Sweden, Van Rooijen-Horsten et al. (2008) for the Netherlands and Barnes and McClure (2009) for Australia. GDP per capita is from the Total Economy Database of The Conference Board.

Sweden and UK are most intangible intensive….with Germany following…..


In which industries do countries invest of their intangible capital?Ge most intangible investment in manufacturing, UK in services

Intangible contributionsRetail: similar; Mfr: Sweden high; Finance: UK high

An innovation gap?

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