Are Intangibles Running out of Steam?

This article looks at the role of intangibles in explaining the slowdown in productivity growth for (the average of) nine EU countries, the United Kingdom and the United States from 2011 to 2019 compared to the period before the Global Financial Crisis (GFC). Using the 2023 version of the EUKLEMS-INTANProd industry-level database, we find that while intangible investment continues to increase as a share of nominal GDP, the growth rate of the intangibles capital stock has moderately slowed in real terms. The contribution of intangible capital deepening to labour productivity growth has remained positive though not strong enough to offset the effects of the large decline in tangible capital deepening. We also find a relatively strong slowdown in labour productivity growth for the most intangible-intensive industries, especially in the United Kingdom and the United States. Preliminary econometric analysis suggests little evidence of strong TFP spillovers from intangible capital deepening, there is mixed evidence of interaction effects for business innovation-related intangibles and ICT and non-ICT tangibles. While intangibles have not run out of steam, we conclude that the impact of intangibles on productivity growth has become more complex, especially as business innovation-related investments seem highly complimentary with other types of capital. We advocate for policies focused on broad-based investment in both tangible and intangible assets to facilitate the diffusion of new technologies and knowledge.