Project funded by the European Commission under the Seventh Framework Programme, Grant No 217512 Intangible Assets and Their Contribution.

Project funded by the European Commission under the Seventh Framework Programme, Grant No 217512

www.coinvest.org

Intangible Assets and Their Contribution to Growth in Germany –

Main Findings From a Macro-, Sector- and Micro-Level Perspective

Dirk Crass, Georg Licht and Bettina PetersZEW Centre for European Economic Research, Mannheim

London Dissemination Conference, 23rd September 2010

Main Tasks of ZEW Within COINVEST

Collecting time series of intangible capital and exploring its contribu-tion to economic growth in Germany using growth accounting methods at the macro level● Focus on sensitivity analysis using alternative data sources

Collecting time series of intangible capital and performing growth accounting at the sector level

Assessing the impact of various (not all) types of intangible capital on productivity using German firm-level data

Structure

1. Intangibles and Their Contribution to Growth at the Macro Level

2. Intangibles and Their Contribution to Growth at the Sector Level

3. Impact of Intangibles on Productivity Growth at the Micro Level

Structure




Intangible Assets: Benchmark Estimates

Computerized information ● Computer software: EU KLEMS

● Computerized databases: EU KLEMS (NACE K724)

Innovative property ● R&D, including social sciences and humanities: GERD (Eurostat)

● Mineral exploration: German national accounts

● Copyright and license costs (Creative Industries): German national accounts

● New product development costs in the financial industry: STAN (OECD)

● New architectural and engineering designs: EU KLEMS

Economic competencies ● Brand equity: EU KLEMS, SBS (Eurostat), World Magazine Trends,

● Firm-specific human capital: LCS 2004, CVTS 2005, EU KLEMS

● Organizational structure: Annual Survey of the European Management Consultancy Market, Structure of Earning Survey 2002 (Eurostat)

Intangible Assets: Sensitivity Analysis

Computerized information ● Computer software: EU KLEMS Nov2009 Release

● Computerized databases: Turnover tax statistics (72.4)

Innovative property ● R&D, including social sciences and humanities: ANBERD (Eurostat)

● Mineral exploration: Turnover tax statistics (45.12)

● Copyright and license costs: Turnover tax statistics (92.11)

● New product development costs in the financial industry: MIP

● New architectural and engineering designs: Turnover tax statistics (74.2)

Economic competencies ● Brand equity: ZAW, MIP, Turnover tax statistics (74.13)

● Firm-specific human capital: MIP, IW

● Organizational structure: Turnover tax statistics (74.14.1), Structure of earnings survey, EU KLEMS Nov2009

Advantage of Alternative Data Sources

Turnover Tax Statistics● Census from the data of the tax authorities that covers nearly all economic

sectors with high quality. It is not based on a sample survey such as the structural business statistics.

● Annual data since 1996 (before that on a biennial basis).

● Unlike SBS no structural break in the year 2000.

● Disaggregated data e.g. on market research (74.13.1) and public opinion polling (74.13.2) available.

● Used for: Computerized databases, mineral exploration, copyright and license costs, new architectural and engineering designs, brand equity, purchased organizational structure.

Advantage of Alternative Data Sources

MIP Mannheim Innovation Panel ● Part of Community Innovation Surveys

● Representative survey

● Annual survey in Germany (EU: 4/2 years), started in 1993

● Extrapolation of figures, based on appr. 5000-6000 firms per year

● Training

• Allows industry break-down for vocational training

• Only direct training costs. Indirect costs are estimated using the proportion of direct to indirect costs provided by IW (av. every 3 years)

● Question on innovation expenditure in the financial industry

● Covers internal and external marketing expenditures beyond advertising

● Used for: Brand equity, new product development costs in the financial industry, and firm-specific human capital

Advantage of Alternative Data Sources IW (Institute of the German Economy)

● Survey data (every three years)

● Direct and indirect training costs.

● Indirect costs: number of training hours * average wage

● Proportion of direct costs to total costs: on average 35%

● Indirect costs used for: Firm-specific human capital.

ZAW (Central Association of the German Advertising Industry)● Publicly available time series data since the mid eighties.

● Broad coverage of all advertising activities and media channels.

● Allows a distinction between net advertising expenditure (media revenues) and gross advertising expenditures (also exp. for the design/production of adv. content and material).

● Unlike SBS no structural break in the year 2000.

● Used for: Brand equity.

Intangible Investment by Category

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Software

Databases

Scientific R&D

Mineral exploration

Copyright licenses

Financial services innovation

Architectural & engineeringdesign

Advertising

Market research

Firm-specific human capital

Organizational structure (p)

Organizational structure (oa)

Intangible Investment as Share of GDP in GermanyInvestment item 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Computerized information 0,52 0,56 0,59 0,63 0,69 0,74 0,78 0,76 0,73 0,73 0,73 0,75

Computer Software 0,51 0,55 0,58 0,62 0,68 0,73 0,75 0,73 0,72 0,72 0,71 0,72

Computerized databases 0,01 0,01 0,01 0,01 0,01 0,02 0,02 0,03 0,01 0,01 0,01 0,02

Innovative property 2,90 2,90 2,92 3,15 3,21 3,16 3,09 3,01 3,00 2,89 2,94 2,94

R&D 1,45 1,45 1,51 1,54 1,67 1,73 1,72 1,72 1,76 1,74 1,72 1,77

Mineral exploration 0,00 0,00 0,00 0,01 0,00 0,00 0,00 0,00 0,00 0,00 0,01 0,00

Copyright and license costs 0,21 0,24 0,24 0,35 0,29 0,26 0,24 0,19 0,20 0,18 0,18 0,16

New product dev. costs in the financial industry 0,21 0,19 0,22 0,30 0,33 0,27 0,23 0,24 0,22 0,18 0,22 0,19

New architectural and engineering designs 1,03 1,02 0,96 0,95 0,92 0,90 0,90 0,86 0,82 0,79 0,81 0,82

Economic competencies 3,80 4,01 4,09 4,16 4,05 4,25 4,24 3,96 3,86 3,66 3,79 3,81

Advertising expenditure 1,02 1,03 1,04 1,06 1,08 1,11 1,03 0,95 0,92 0,91 0,91 0,90

Market research 0,10 0,10 0,08 0,07 0,07 0,06 0,06 0,06 0,07 0,08 0,07 0,07

Firm-specific human capital 1,38 1,57 1,62 1,59 1,29 1,34 1,41 1,33 1,36 1,18 1,28 1,29

Purchased organizational structure 0,49 0,52 0,58 0,67 0,84 0,95 0,96 0,85 0,75 0,74 0,79 0,83

Own account organizational structure 0,80 0,79 0,78 0,77 0,77 0,79 0,78 0,77 0,76 0,75 0,74 0,73

Total investment in intangibles 7,22 7,46 7,60 7,93 7,95 8,15 8,11 7,73 7,59 7,28 7,46 7,50

Notes: n.a.: f igure not available; n.y.: f igure not yet available.

Intangible Investment as Share of GDP in Germany

0.56 0.63 0.74 0.76 0.73

2.90 3.15 3.16 3.01 2.89

4.014.16 4.25

3.963.66

0.75

2.94

3.81

7.287.73

8.157.93

7.46 7.50

0.00

1.00

2.00

3.00

4.00

5.00

6.00

7.00

8.00

9.00

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Economiccompetencies

Innovativeproperty

Computerizedinformation

Intangible Inv. as Share of GDP in Germany, 2004 – Comparison of Data Sources

0,72

0,01

1,74

0,00

0,18

0,18

0,79

0,91

0,08

1,18

0,74

0,75

0,67

1,69

0,00

0,20

0,70

0,87

0,41

0,15

1,34

0,50

0,47

0,02

-2 ,0 0 2 ,0 0

Computer Software

Computerized databases

R&D

Mineral exploration

Copyright and license costs

New product dev. costs in the financial industry

New architectural and engineering designs

Advertising expenditure

Market research


Purchased organizational structure

Own account organizational structure

ZEW

TCBE

0,72

0,01

1,74

0,00

0,18

0,18

0,79

0,91

0,08

1,18

0,74

0,75

0,67

1,69

0,00

0,20

0,70

0,87

0,41

0,15

1,34

0,50

0,47

0,02

-2 ,0 0 2 ,0 0

Computer Software


R&D

Mineral exploration


New product dev. costs in the financial industry

New architectural and engineering designs

Advertising expenditure

Market research




ZEW

TCBE

Intangible Inv. as Share of GDP in Germany, 2004 – Comparison of Data Sources

Comparison of Data Sources: New Product Development Costs in the Financial Industry

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

TCBE ZEW

Comparison of Data Sources: Brand Equity

0

5000

10000

15000

20000

25000

30000

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

TCBE ZEW

Decomposition of Aggregate Labour Productivity, 1997-2006

Excluding Intangibles Including IntangiblesAggregate value added 0.25 0.32 Average Labour productivity 0.45 0.72 Hours worked -0.20 -0.40

ContributionLab. Productivity 0.45 0.72Capital deepening 0.22 0.52

ICT 0.06 0.08Non-ICT 0.16 0.21Intangible 0.23

Labour quality 0.00 -0.01TFP 0.23 0.21

Structure




Distribution of Intangible Investments Across Industries

50 504948

13 1314

12

32 3232

33

0

20000

40000

60000

80000

100000

120000

140000

160000

180000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Agriculture, Fishing & Mining ManufacturingElectricity, Gas & Water ConstructionTrade, Hotels & Rest., Transp. & Comm. Financial & Business ServicesBusiness Sector

Increasing trend until 2001 Decrease since 2001

Stable distribution across industries over time

Distribution of Economic Competences Across Industries

38 37 3835

1718

15

16

38

38

39

41

0

10000

20000

30000

40000

50000

60000

70000

80000

90000

100000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


Distribution of Innovative Property Across Industries

71696968

222323

23

0

10000

20000

30000

40000

50000

60000

70000

80000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006


Concentrated in two industries

Increasing overall trend, but stable distribution across industries.

Distribution of Computerized Information Across Industries

313136

36

2522

25

26

28

31

40 36

0

2000

4000

6000

8000

10000

12000

14000

16000

18000

20000

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Agriculture, Fishing & Mining ManufacturingElectricity, Gas & Water ConstructionTrade, Hotels & Rest., Transp. & Comm. Financial & Business ServicesBusSec

Increasing trend until 2001

Shift in distribution from manufac-turing towards business services

Distribution of Intangible Investments by Sector, 2004

50%

64%

37%

63%

77%67%

61%

40%

30%

56%14%

15%

14% 27%

10% 6% 6%

22%

8%19%

11%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

BusinessSector

AgMining(1.6 bn)

Manufr(81.2 bn)

Electricity,Gas&Water

(2.7 bn)

Construct.(3.7 bn)

Trade, Ht,Transp.

(21.0 bn)

FinBsSvc(50,8 bn)

Computerizedinformation

Innovativeproperty

Economiccompetences

Distribution of Intangible Investments by Sector, 2004

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Mfr RetHtTrn FinBsSvc

Computer Software


R&D

Mineral exploration


New product dev. costs in thefinancial industryNew architectural and engineeringdesignsAdvertising expenditure

Market research




Proportion of Intangible to Tangible Investments by Sector

0.0

20.0

40.0

60.0

80.0

100.0

120.0

140.0

160.0

180.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

AgMin Mfr Util Cons RetHtTrn FinBsSvc BusSec

Intangible Investment by Sector as Share of Sector Value Added

0.0

2.0

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

AgMin Mfr Util Cons RetHtTrn FinBsSvc

Contributions to Labour Productivity at the Sector Level

1 2 3 4 5 6AgMin Mfr. Util. Cons. RetHtTm FinBsSvs

Gross output -0.44 2.94 2.69 -2.66 2.33 3.15Hours worked -3.00 -1.65 -3.69 -2.37 -0.02 3.66Lab. Productivity 2.56 4.59 6.38 -0.29 2.35 -0.51Capital deepening -0.06 0.21 1.44 -0.03 0.33 0.44

ICT 0.02 0.04 0.09 0.02 0.11 0.39Non-ICT -0.08 0.17 1.35 -0.05 0.22 0.05Intangible

Labour quality -0.22 0.07 0.04 0.08 -0.01 -0.03Intermediate input deepening1.21 3.34 4.07 0.09 1.21 -0.22TFP 1.62 0.97 0.83 -0.43 0.81 -0.70

Gross output -0.45 2.90 2.72 -2.65 2.33 3.21Hours worked -3.00 -1.65 -3.69 -2.37 -0.02 3.66Lab. Productivity 2.54 4.55 6.41 -0.28 2.35 -0.45Capital deepening 0.15 0.82 1.84 0.12 0.56 0.86

ICT 0.02 0.04 0.09 0.02 0.12 0.39Non-ICT -0.06 0.20 1.39 -0.05 0.23 0.06Intangible 0.19 0.58 0.36 0.16 0.21 0.41

Labour quality -0.22 0.07 0.04 0.08 -0.01 -0.03Intermediate input deepening1.04 3.10 3.90 0.08 1.16 -0.04TFP 1.57 0.56 0.63 -0.57 0.63 -1.24

Including Intangibles

Excluding Intangibles

Growth Accounting in Manufacturing and Fin.& Bus.Services by Period

1997-2000 2001-2003 2004-2006 1997-2000 2001-2003 2004-2006

Gross output 4.02 0.11 4.21 4.77 1.22 3.13

Hours worked -1.99 -0.86 -1.98 4.47 3.36 2.89

Lab. Productivity 6.01 0.97 6.20 0.30 -2.14 0.23

Capital deepening 1.37 0.50 0.41 1.93 0.33 -0.02

ICT 0.06 0.03 0.02 0.62 0.31 0.17

Non-ICT 0.30 0.12 0.14 0.23 -0.09 -0.03

Intangible 1.00 0.35 0.25 1.08 0.11 -0.17

Labour quality 0.02 0.20 0.02 -0.06 0.16 -0.19

Intermed. input deepening 4.10 0.81 4.05 0.37 -1.06 0.43

TFP 0.53 -0.55 1.72 -1.93 -1.57 0.01

Manufacturing Financial and Business Services

Decomposition of Lab.Prod. by Intangible Assets

AgMin Mfr. Util. Cons. RetHtTm FinBsSvs

Lab. Productivity 2.54 4.55 6.41 -0.28 2.35 -0.45

Capital deepening 0.15 0.82 1.84 0.12 0.56 0.86

ICT 0.02 0.04 0.09 0.02 0.12 0.39

Non-ICT -0.06 0.20 1.39 -0.05 0.23 0.06

Intangible 0.19 0.58 0.36 0.16 0.21 0.41

Computerized Information 0.01 0.04 0.09 0.01 0.05 0.06

Computer Software 0.01 0.04 0.09 0.01 0.05 0.06

Computerized databases 0.00 0.00 0.00 0.00 0.00 0.00Innovative property 0.07 0.39 0.06 0.04 0.04 0.21

R&D 0.02 0.29 0.01 0.00 0.01 0.05Mineral exploration 0.01 0.00 0.00 0.00 0.00 0.00Copyright and license costs 0.00 0.04 0.00 0.00 0.00 0.00New product dev. Costs in fin. Ind. 0.00 0.00 0.00 0.00 0.00 0.07New architectural and engin. designs 0.04 0.06 0.05 0.04 0.03 0.09

Economic competencies 0.11 0.15 0.21 0.11 0.13 0.15Advertising expenditure 0.03 0.02 0.03 0.01 0.02 0.00Market research 0.00 0.00 0.00 0.00 0.00 0.00Firm-specific human capital 0.01 0.05 0.09 0.05 0.06 0.04Purchased organizational structure 0.03 0.03 0.04 0.02 0.02 0.04Own account organizational structure 0.04 0.05 0.05 0.03 0.03 0.07

Labour quality -0.22 0.07 0.04 0.08 -0.01 -0.03Intermediate input deepening 1.04 3.10 3.90 0.08 1.16 -0.04TFP 1.57 0.56 0.63 -0.57 0.63 -1.24

Including Intangibles

Structure




Motivation

At the micro level:

● Much evidence on productivity enhancing effects of R&D

● But only scarce evidence on the effect of other types of intangibles

investments at the firm level

Research question: Do all types of investments in intangible assets

enhance productivity at the firm-level?

Analysis based on panel data (MIP) for German companies from 2006-

2008 (5117 firms, 7552 observations).

Estimation Approach

Cobb-Douglas production function

● With Q: output, L: labour, K: physical capital, M: material, λ: exogenous technological change, u: error term

● RD: R&D capital, NI: non-R&D related innovation capital, TR: human capital, MKT: marketing

As log specification:

Estimation Methods: Pooled OLS, FE (fixed effects), FD (first difference estimation, i.e productivity growth)

31 2 4(1) t ituit it it it it it it itQ Ae L K M RD NI TR MKT e

1

2 3 4

(2) log( ) log( ) log( ) log( ) log( )

log( ) log( ) log( )it it it it it

it it it t it

Q a L K M RD

NI TR MKT u

Knowledge-related Intangible Input Factors R&D:

● log (R&D expenditure / employee)

Non-R&D related innovation: ● log (expenses for external knowledge, design, market introduction, training and

product preparation related to innovation / employee)

Marketing: ● log (marketing expenditure / employee)● Note: to avoid double accounting we correct for market expenditure for innovation

projects (based on industry average in prior wave)

Training: ● log (training / employee)● Note: to avoid double accounting we correct for training expenditure for innovation

projects (based on industry average in prior wave)

Organisational innovation: ● 4 dummies for whether the firm has introduced new practices, workplace

organisation, knowledge management and external relationships

Additional Explanatory Variables

Traditional input factors:● Labour : log (# employees)

Note: to avoid double counting we correct the total number of employees for R&D employees

● Physical capital: log (tangible assets / employee)Note: tangible assets are direct information from the survey

● Material: log (material expenses / employees)

Control variables:● East Germany: dummy whether firm is located in East Germany● Export intensity: exports / sales● Group: company is part of a group (0/1)● Time dummies● Industry dummies

Main Findings From Micro Work

We confirm strong positive productivity effects for R&D, marketing and training.

Effects of marketing are highest, even higher than those of R&D (in the short term).

Only weak evidence for positive productivity effects of non-R&D related innovation assets like design, licenses and product preparation.

Mixed productivity effects of firms increasing their organizational capital by introducing organisational innovations: ● positive effect for business practices

● but not for workplace organisation

Back-Up Slides

Structure




Econometric results

FE(1) (2) (3) (4) (5)

Labor -0.023 *** -0.027 *** -0.036 *** -0.046 *** - -Capital 0.077 *** 0.073 *** 0.069 *** 0.080 *** 0.079 *** 0.085 ***Material 0.416 *** 0.414 *** 0.405 *** 0.44 *** 0.165 *** 0.151 ***R&D 0.013 *** 0.006 *** 0.016 *** 0.008 ** 0.007 *Non-R&D Innov. 0.004 *** 0.001 -0.001 0.000Training 0.00003 *** 0.00003 *** 0.00002 *** 0.00002 **Marketing 0.011 *** 0.007 * 0.012 *** 0.012 **Busin. Process 0.064 **Workplace orga -0.038Extern. rel. -0.005Knowl. manag. 0.013Controls yes yes yes yes yes yesTime D yes yes yes yes yes yesIndustry D yes yes yes yes no yesR2 0.695 0.698 0.705 0.746 0.17 0.137# Obs. 7552 7552 7552 2317 7552 2356

LevelPooled OLS

Econometric resultsProductivity

FE(5)

Labor - -Capital 0.079 *** 0.085 ***Material 0.165 *** 0.151 ***R&D 0.008 ** 0.007 *Non-R&D Innov. -0.001 0.000Training 0.00002 *** 0.00002 **Marketing 0.012 *** 0.012 **Busin. ProcessWorkplace orgaExtern. rel.Knowl. manag.Controls yes yesTime D yes yesIndustry D no yesR2 0.17 0.137# Obs. 7552 2356

Growth rateOLS(5)

Descriptive statisticsMean SD Median Min Max

Productivity 0.268 1.293 0.138 0.002 89.938Productivity growth 0.016 0.375 0.015 -5.118 3.040Employees 851 6091 42 0 399796Physical capital 0.143 0.692 0.025 0 41.063Material costs 0.152 1.156 0.051 0 89.794R&D expenditures 0.008 0.114 0.000 0 5.941Non-R&D innovation 0.005 0.024 0.000 0 1.050Training 0.001 0.001 0.000 0 0.048Marketing 0.002 0.009 0.000 0 0.485Busin. Process 0.364 0.483 0 0 1Workplace orga 0.354 0.480 0 0 1External rel. 0.246 0.434 0 0 1Knowl. manag. 0.289 0.453 0 0 1East Germany 0.323 0.468 0 0 1Group 0.367 0.482 0 0 1Export intensity 0.167 0.252 0.011 0 1.118

Intangible Investment by category (in % of total intang. investment)

0.0 5.0 10.0 15.0 20.0 25.0

Software

Databases

Scientific R&D

Mineral exploration

Copyright licenses

Financial services innovation

Architectural & engineering design

Advertising

Market research


Organizational structure (p)

Organizational structure (oa)

y1995

y2000

y2005

Project funded by the European Commission under the Seventh Framework Programme, Grant No 217512 Intangible Assets and Their Contribution.

Documents

economic growth

sector level

productivity growth

micro level slide

eu klems nov2009 slide

german firmlevel data

eurostat slide

macro level focus