Trusted Insights for Business Worldwide Intangible Investment and

Trusted Insights for Business Worldwide Intangible Investment and Levels of Economic Development Bart van Ark, Janet Hao, Carol Corrado and Charles Hulten March 2010 The Conference Board Name 1 www. conference-board. org © 2008 The Conference Board, Inc. Director, Associate Service The Conference Board

Intangible Assets: a New Driver of the Modern Economy Traditional assets can be touched or seen. land, plant and equipment. Intangible assets cannot be touched or seen, such as software development of Microsoft, research and development of Johnson & Johnson, brand equity of Coca Cola and logistics management of Walmart. We should capitalize intangible assets as we capitalize tangible assets because both use current resources in order to increase future production and consumption (Corrado, Hulten and Sichel, 2005). 2 www. conference-board. org © 2008 The Conference Board, Inc.

List of Intangible Assets Computerized information Software (already in NA) Database Innovative property R&D Mineral exploration and evaluation (already in NA) Copyright and licenses New products in financial industry Architectural and engineering designs Economic Competencies Brand equity Firm-specific human capital Organizational structure Source: Corrado, Hulten and Sichel (2005). 3 www. conference-board. org © 2008 The Conference Board, Inc.

Goal of This Research Carrying out growth accounting using intangible assets. Comparing intangible assets across 16 countries that have estimates of intangibles available. Exploring the possible determinants of intangible investment. 4 www. conference-board. org © 2008 The Conference Board, Inc.

4. 60 2. 96 3. 27 3. 06 2. 00 2. 11 1. 79 2. 36 0. 47 0. 29 Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , and Marrano et al. (2009) for the UK. 6 www. conference-board. org © 2008 The Conference Board, Inc.

23% 50% 8% 37% 46% 42% 54% 8% 16% Source: Hao et al. (2009) for Germany, France, Italy and Spain; CHS (2009) for the US , and Marrano et al. (2009) for the UK. 7 www. conference-board. org © 2008 The Conference Board, Inc.

Contribution to LP Growth (1995 -2006) Source: Hao et al. (2009) for Germany, France, Italy, Spain, Austria and Denmark; CHS (2009) for the US , Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, and Edquist (2009) for Sweden. Note: Finland is from 1995 to 2005, and Sweden is from 1995 to 2004. 8 www. conference-board. org © 2008 The Conference Board, Inc.

Correlation between Intangibles and Other Variables Wealthier countries invest greater proportions in intangible assets. Higher intangible investments (% GDP) is associated with greater labor productivity. Mature financial market is associated with heavy investment in intangible assets. Government policy is associated with intangible investment. Openness is negatively correlated with intangible investment. 9 www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. GDP per capita is from the Total Economy Database of The Conference Board. © 2008 The Conference Board, Inc. 10 www. conference-board. org

11 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©Mc. Clure (2009) for Australia. 2008 The Conference Board, Inc. www. conference-board. org

12 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 Mc. Clure (2009) for Australia. Market capitalization is from Eurostat. www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. Venture capital is from Eurostat. 13 www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. Days required to open a business is from WDI of the World Bank. 14 www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. R&D as a share of governmetn budget is from Eurostat. 15 www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. Imports as a percentage of GDP are from WDI of the World Bank. 16 www. conference-board. org © 2008 The Conference Board, Inc.

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 Mc. Clure (2009) for Australia. FDI as a percentage of GDP is from WDI of the World Bank. 17 www. conference-board. org © 2008 The Conference Board, Inc.

Correlations (2001 -04) intan inv (%GDP) TFP (conventional) FDI(share of gdp) imports(%gdp) exports (%gdp) 18 -0. 26 -0. 52 -0. 37 0. 52 0. 43 0. 39 high-tech exports (% of manufactured exports) 0. 77 0. 15 R&D in gov budget time required to start a business (days) Military Expenditure (% GDP) % population using computer %population using internet share researchers(all) in total emp share tertiary edu 0. 80 -0. 57 -0. 04 0. 77 0. 69 0. 62 0. 39 -0. 06 -0. 10 0. 27 0. 37 0. 48 0. 33 -0. 11 sell goods in other countries --innov enterprises 0. 46 -0. 38 sell goods in other countries --non-innov enterprises -0. 03 -0. 49 www. conference-board. org © 2008 The Conference Board, Inc.

Conclusion and Future Research Intangible assets explains about a quarter of LP growth in the US and larger countries of the EU. Western Europe benefited more from intangible assets than catching-up countries did. Catching-up countries such as Czech Republic, Greece and Slovakia benefited more from tangible assets than from intangible assets. To find out what caused the cross-country difference, we need to look deeper into each economy and possibly carry out analysis at the industry level. 19 www. conference-board. org © 2008 The Conference Board, Inc.

Backup Slides 20 www. conference-board. org © 2008 The Conference Board, Inc.

Intangible Assets Software Databases Depreciation Rates 0. 315 R&D Mineral exploration and evaluation 0. 2 Copyright and license costs 0. 2 Development costs in the financial industry 0. 2 New architectural and engineering designs 0. 2 Advertising expenditure Market research Firm-specific human capital Organizational structure Source: CHS (2005) 21 www. conference-board. org © 2008 The Conference Board, Inc. 0. 6 0. 4

2006 22 www. conference-board. org © 2008 The Conference Board, Inc.

Source of Growth Analysis Source: Hao et al. (2009) for Germany, France, Italy, Spain; and Austria, Marrano et al. (2009) for the UK, Jalava et al. (2007) for Finland, Edquist (2009) for Sweden, and Van Rooijen-Horsten et al. (2008) for the Netherlands. 23 www. conference-board. org © 2008 The Conference Board, Inc.