Revisiting intangible capital and labour productivity growth, 2000 – 2015 Accounting for the crisis and economic recovery in the EU

Purpose – This paper aims to revisit the relationship between intangible capital and labour productivity growth using the largest, up-to-date macro database (2000 – 2015) available to corroborate the econometric findings of earlier work and to generate novel econometric evidence by accounting for times of crisis (2008 – 2013) and economic recovery (2014 – 2015). Design/methodology/approach – To achieve these aims, this paper employs a cross-country growth accountingeconometricestimationapproachusingthelargest,up-to-datedatabaseavailableencompassing16 EUcountriesovertheperiod2000 – 2015. The paper accounts for times of crisis (2008 – 2013) and of economic recovery(2014 – 2015).Itseparatelyestimatesthecontributionofthreedistinctdimensionsofintangiblecapital: (1) computerized information, (2) innovative property and (3) economic competencies. Findings – First, when accounting for intangibles, the paper finds that these intangibles have become the dominantsourceoflabour productivity growthinthe EU,explainingup to66percentofgrowth.Second,when accounting for times of crisis (2008 – 2013), in contrast to tangible capital, the paper detects a solid positive relationship between intangibles and labour productivity growth. Third, when accounting for the economic recovery (2014 – 2015), the paper finds a highly significant and remarkably strong relationship between intangible capital and labour productivity growth. Originality/value – This paper corroborates the importance of intangibles for labour productivity growth andtherebyunderlinesthenecessitytoincorporateintangiblesintotoday ’ snationalaccountingframeworksin order to correctly depict the levels of capital investment being made in European economies. These levels are significantly higher than those currently reflected in the official statistics.


Introduction
Recent research reports a disappointing performance in labour productivity growth among European Union (EU) and euro area (EA) countries since the start of the crisis from 2008 to 2015 Intangible capital and labour productivity (Van Ark and J€ ager, 2017).According to this literature, this performance stems largely from a slower diffusion of technology and innovation due to low growth rates of information and communication technology (ICT) and complementary intangible capital investment (Van Ark and J€ ager, 2017, p. 15;Van Ark, 2016, pp. 37-41;Van Ark and O'Mahony, 2016, pp. 132-138).Indeed, a recent growth-accounting study at the macro level over the period 2000-2013 identifies the deepening of intangible capital as a main driver of labour productivity growth (Corrado et al., 2018, p. 11).Such findings are in line with existing growth-accounting studies for the US (Corrado et al., 2009), the UK (Marrano et al., 2009), Japan (Fukao et al., 2009), Sweden (Edquist, 2011) and the EU-15 (Corrado et al., 2013).
Within this substantial body of growth-accounting evidence, however, there exists only scarce econometric evidence at the macro level of the impact of intangible capital investment on labour productivity growth.The only existing econometric study analyses an EU-13 country sample for pre-crisis times from 1998 to 2005 (Roth and Thum, 2013).This scarcity of growth econometric studies is remarkable in light of their general advantages in comparison to growth accounting studies (Temple, 1999, pp. 120-121).To help close this gap in the research, this paper conducts an econometric analysis using a cross-country growth-accounting approach covering 16 EU countries over the period 2000-2015.This approach overcomes earlier work in two ways.First, the paper is able to corroborate earlier econometric findings (Roth and Thum, 2013) with the help of a greatly extended dataset containing more than two and half times the number of overall observations (256 versus 98).Second, by covering a period until 2015, the paper is able to generate novel econometric findings on the impact of intangible capital deepening on labour productivity growth by accounting for times of crisis (2008)(2009)(2010)(2011)(2012)(2013) and times of economic recovery (2014)(2015).
By matching the most recent release of the INTAN-Invest (NACE2) [1] dataset (Corrado et al., 2018) with the latest figures from the EU KLEMS [2] dataset (J€ ager, 2017), in combination with a wide range of growth-relevant policy variables from Eurostat, OECD and the World Bank, this paper provides the largest up-to-date intangible capital panel dataset at the macro-level containing an overall number of 256 country observations.Estimating a slightly modified model specification as developed within the existing literature (Roth and Thum, 2013, p. 495) with the help of a cross-country growth-accounting econometric approach, the paper reaches three major findings.First, in line with the previous growth econometric literature (Roth and Thum, 2013), the paper confirms that once intangibles are accounted for, they become the dominant source of labour productivity growth in the EU, explaining up to 66 percent of this growth.Second, when accounting for times of crisis (2008)(2009)(2010)(2011)(2012)(2013), this paper finds that even when the relationship between tangible capital and labour productivity turned negative, the impact of intangibles on growth remained solidly positive.Third, when accounting for the economic recovery (2014)(2015), we find a highly significant and remarkably strong relationship between intangible capital and labour productivity growth.

Theoretical linkages between intangible capital and labour productivity growth
The earliest work highlighting the importance of intangible capital for labour productivity reaches back as far as the 1960s (Haskel and Westlake, 2018, p. 38).Based on research by Brynjolfson et al. (2002) and Nakamura (2001), amongst others, Corrado et al. (2005) developed a methodological framework for the US of how to account for business intangibles in the "new economy".The authors used an intertemporal framework for investment and grouped the various business intangibles into three broad dimensions: 1) computerized information, namely software, 2) innovative property, namely research & development (R&D) and 3) economic competencies, namely brand names, firm-specific human capital and organizational capital.Conducting a growth-accounting analysis alongside their methodological framework, Corrado et al. (2009) showed that business intangibles were able to explain a significant share of labour productivity growth.Using growth-accounting studies, similar results were found for the UK (Marrano et al., 2009), Japan (Fukao et al., 2009), Sweden (Edquist, 2011) and the EU (Corrado et al., 2013 and2018).Econometric cross-country growth-accounting studies for the EU (Roth and Thum, 2013) find an even stronger impact of intangibles on labour productivity growth.In addition, the positive relationship between intangible capital and labour productivity was prominently discussed and established in the work of Bounfour (Bounfour and Miyagawa, 2015;Delbecque et al., 2015); Piekkola (2016 and2018) and Miyagawa (Miyagawa and Hisa, 2013;Bounfour and Miyagawa, 2015).
The positive relationship between computerized information and labour productivity growthparticularly the interaction between software and organizational capital (Brynjolfsson et al., 2002) and R&D and labour productivity growth (Guellec and van Pottelsberghe de la Potterie, 2001) has already been well established in the literature.Consequently, the three intangible assetssoftware, R&D and entertainment, artistic and literary originals and mineral explorationwere already included in the asset boundary of the national accounts.Given that economic competencies in particular were not yet included in the national accounts, it seems necessary to once more elaborate their positive role in labour productivity growth.Concerning brand names, Cañibano et al. (2000) argue that the ownership of an attractive brand permits a seller to retain a higher margin for goods or services compared to his competitors.Since the consumer is driven by his perceptions in choosing among the products of competing firms, the development of an appealing image or brand is crucial in producing future benefits.Concerning training or firm-specific human capital, the same authors stress that a firm with higher-skilled employees is likely to attain higher profits than competitors whose workers are less competent.This observation is in line with Abowd et al. (2005), who argue that the value of a firm will increase if the quality of its firm-specific human capital resources improves.Concerning organizational capital, Lev and Radhakrishnan (2005, p. 75) define organizational capital as "an agglomeration of technologies (. ..) business practices, processes and designs and incentive and compensation systems-that together enable some firms to consistently and efficiently extract from a given level of physical and human resources a higher value of product than other firms find possible to attain".The authors classify this as the only competitive asset truly possessed by a firm, whereas the others are exchangeable and thus can be obtained by any company prepared to make the necessary investment.

Estimates on intangible capital
A methodological framework originally developed by Corrado et al. (2005) for measuring business intangibles in the US has become widely used internationally.The framework was adopted in individual country-case studies for the UK (Marrano et al., 2009), Japan (Fukao et al., 2009) and Sweden (Edquist, 2011).Adapting this methodological framework to the EU, the FP7 INNODRIVE project [3] constructed the first harmonized dataset for an EU-27 country sample (plus Norway), alongside the three dimensions mentioned above.It contained two "old" national account intangibles and eight "new" intangibles over the time period 1980-2005(INNODRIVE, 2011;;Jona-Lasinio et al., 2011;Gros and Roth, 2012;Roth and Thum, 2013).The INNODRIVE macro database was used as the base for the EU-27 countries within the first version of the INTAN-Invest (NACE1) dataset [4]-a harmonized and updated intangible dataset covering the EU and the US over the time period 1980-2010 (Corrado et al., 2013).In developing the second version of the INTAN-Invest (NACE2) dataset, Corrado et al. (2016Corrado et al. ( , 2018) ) significantly altered their methodology to provide information on intangible capital on single-digit NACE2 economic sectors and updated their dataset in the latest January 2019 release until the year 2015.

Intangible capital and labour productivity
The INTAN-Invest (NACE2) covers 19 EU countries plus the US over the period 1995-2015.The dataset measures three "old" national account intangibles and five "new" intangibles.The dataset groups business intangibles under three dimensions: (1) computerized information, (2) innovative property and (3) economic competencies.The first dimension, i.e. computerized information, contains computer software and databases.The second dimension, i.e. innovative property, contains (1) entertainment, artistic and literary originals and mineral exploration, (2) R&D, (3) design and ( 4) new product development in the financial industry.The third dimension, i.e. economic competencies, contains (1) brand, (2) firm-specific human capital and (3) organizational capital.A detailed explanation of the altered methodology of the INTAN-Invest (NACE2) dataset is provided in Corrado et al., (2016), pp.42-47.

Previous empirical results
Table I gives an overview of the existing empirical results of the growth-accounting and cross-country growth econometric literature analyzing the relationship between business intangible capital and labour productivity growth by businesses at the macro level.The table displays three distinct effects once intangible capital has been incorporated into the asset boundary of the national accounts.
In the first instance, the table clarifies that investments in intangible capital reach significant levels, once they are fully accounted for.Analyzing the business investment level for the US in pre-crisis times, Corrado et al. (2009) find a business investment level of 13 percent of non-farm business output, whereas Nakamura (2010) finds equal shares of intangible and tangible capital investments.Similar investment rates for pre-crisis times are found for Japan (Fukao et al., 2009) and the UK (Marrano et al., 2009) with 11.1 percent of GDP and 13 percent of adjusted MGVA (market sector gross value added), respectively.With a value of 16 percent of GVA (gross value added), higher business investment rates are found in Sweden (Edquist, 2011).Utilizing INNODRIVE data, Roth and Thum (2013) find an average business investment rate for pre-crisis times (1998)(1999)(2000)(2001)(2002)(2003)(2004)(2005) for 13 EU countries of 9.9 percent of GVA.Utilizing the first version (NACE1) of the INTAN-Invest dataset, Corrado et al. (2013) find an average business investment rate of 6.6 percent of GDP for an EU-15 country sample from 1995 to 2009.Utilizing the second version of the INTAN-Invest (NACE Rev.2) dataset, Corrado et al. (2018) find an average investment rate for business intangibles for the EU-14 and NMS-4 of 7.2 and 6.4 percent of GDP, respectively, from 2000 to 2013.
Second, the contribution from intangible capital services to labour productivity growth is significant.Once business intangible capital is accounted for, 27 percent and 20 percent of labour productivity growth were explained in the US and the UK, respectively.The same and higher values of up to 41 percent hold for Japan and Sweden (Fukao et al., 2009;Edquist, 2011).Utilizing INNODRIVE data and analyzing 13 EU countries with the help of an econometric cross-country growth accounting methodological approach, Roth and Thum (2013) find that 50 percent of labour productivity can be explained.Using INTAN-Invest (NACE1) data for an EU-15 country sample over the time period 1995-2009, Corrado et al. (2013) ) find a value of 24 percent.In their most recent study, using INTAN-Invest data (NACE2), Corrado et al. (2018) differentiate between a pre-crisis and a crisis period.They find that intangible capital contributes 30 percent over the time period 2000-2013, and 19 and 43 percent in times of pre-crisis and crisis respectively, for an EU-14 country sample.
Third, the capitalization of intangibles accelerates productivity growth.

Model specification
We estimate a slightly revised model specification as developed in the existing econometric literature (Roth and Thum, 2013, p. 495).Following this literature, the slightly revised model specification takes the following form: Where ðlnq i;t − lnq i;t−1 Þ is labour productivity growth (GVA expanded by intangibles and divided by total hours worked) for the non-farm business sectors b-n þ rÀs excluding real estate activities expanded by the investment flows of business intangible capital in country i and period t.The constant term c represents exogenous technological progress; the level of human capital ðH i;t Þ reflects the capacity of a country to innovate domestically; and the term H i,t (q max,t Àq i,t )/q i,t proxies a catch-up process, with q max,t using a purchasing power parity-weighted GVA measure divided by total hours worked and representing the country with the highest level of labour productivity at period t.
The term (1ur i,t ) takes into account the business-cycle effect proxied by 1 minus the unemployment rate (ur); the term P k j¼1 X jit is the sum of k extra policy variables, which could possibly explain TFP (total factor productivity) growth and yd i,t are year dummies to control amongst others for the economic downturn in 2001, in the wake of the bursting of the information-technology bubble in the previous year and the 9/11 attack in 2001, as well as the pronounced economic downturn since 2008.(lnk i,tlnk i,tÀ1 ) and (lnr i,tlnr i,tÀ

Research design
The econometric analysis covers 16 out of 27 EU countries from 2000 to 2015.The countries included are Austria, Czech Republic, Denmark, Finland, France, Germany, Greece, Ireland, Italy, the Netherlands, Portugal, Spain, Slovakia, Slovenia, Sweden and the United Kingdom [5].With 16 EU countries and 16 time periods from 2000 to 2015, this leaves the econometric analysis with an overall number of 256 observations.Following the approach by Roth and Thum (2013, p. 496), annual growth rates from 2000 to 2015 were estimated.The econometric analysis was restricted to a period of 2000-2015, due to the valid calculation of capital stock data.Equation ( 1) is estimated with the help of an econometric cross-country growth accounting approach.This approach differs from traditional singlegrowth accounting in two ways.First, the output elasticities are estimated rather than imposed.And second, the model can be designed to explain the international variance in TFP (total factor productivity) growth.The whole research design applies to non-farm business sectors bÀn þ rÀs excluding real estate activities.For Greece, Ireland and Portugal, measures for the total economy were adjusted to the non-farm business sectors.For Greece, disproportionately high levels of organizational capital investment were adjusted to an average EU-16 level.Measurement errors and missing values in the latest releases of the EU KLEMS (J€ ager, 2017) and the INTAN-Invest (NACE2) dataset (Corrado et al., 2018) were dealt with when necessary [6].

Data sources
The data were retrieved from the sources specified below: (1) Data on the single components of intangible capital were taken from the INTAN-Invest (NACE2) dataset (Corrado et al., 2018), which provides information on gross fixed capital formation (GFCF) and intangibles adjusted GVA.The data cover 19 EU countries þ the US over the period 1995-2015, for 21 NACE2 economic sectors.The INTAN-Invest (NACE2) dataset does not provide intangible capital stocks.
(2) Data on the single components of tangible capital were taken from the EU KLEMS database (J€ ager, 2017).The database provides data on GFCF, tangible capital stocks, GVA, labour compensation, capital compensation and number of hours worked per employee.The data cover the EU-28 countries and the US, over the period 1995-2015, for 21 NACE2 economic sectors.
(3) Human capital is measured as the percentage of the population aged 15þ that has attained at least upper-secondary education, which is taken as a proxy for the stock of human capital.The data were obtained from Eurostat.
(4) Data on unemployment, power purchasing parity (PPP), inflation (HICP), government expenditures on education (percent of GDP), total government expenditures (percent of GDP), social expenditure (percent of GDP) and stock of foreign direct investment (FDI) (percent of GDP) were obtained from Eurostat.
(5) Data on income tax (as a percent of GDP) were obtained from the OECD.The variables rule of law (Kaufmann et al., 2010), data on market capitalization (percent of GDP) and openness to trade were retrieved from the World Bank.

A note on the construction of intangible capital stocks
In line with the literature (Niebel et al., 2017, p. 55;Roth and Thum, 2013, p. 497;Timmer et al., 2007, pp. 32 and 39), intangible capital stocks for the selected 16 EU-27 countries for the time period 2000-2015 were constructed by applying the perpetual inventory method (PIM) to a series of intangible capital investment going back to 1995 and using the depreciation rates (δ R ) as suggested by Corrado et al. (2009): 20 percent for R&D, design and new product development in the financial services industry; 35 percent for software; 40 percent for organizational capital and firm-specific human capital; 60 percent for brand names and 13.75 percent for entertainment, artistic and literary originals and mineral exploration.For the calculation of the intangible capital stock R t , the PIM takes the following form: which assumes that (1) geometric depreciation, (2) constant depreciation rates over time and (3) depreciation rates for each type of asset are the same for all countries.The real investment series for (N t ) uses a GVA price deflator which is the same for all intangibles.

A note on the construction of intangible and tangible capital services
Data on intangible capital service services were generated according to the work by Oulton and Srinivasan (2003) and Marrano et al. (2009) and are consistent with the EU KLEMS approach (Timmer et al., 2007).This work contends that rather than using a wealth measure (such as the capital stock), it is vital to ascertain the flow of services a capital stock can provide to production.The technical steps of the construction of intangible and tangible capital services are in line with Roth and Thum (2013) and are explained in detail in Appendix 1.

Descriptive analysis
Table AI in Appendix 2 shows the descriptive statistics of the analyzed dataset.Labour productivity growth increased by 0.1 percentage points (from 1.5 to 1.6), or by 6.7 percent, a slightly higher value than the value of 4.4 percent detected in previous work (Roth and Thum, 2013, p. 498).Figure 1 shows the business intangible capital investment over GVA for the   The figure shows that overall business intangible capital investments vary considerably across the 16 EU countries.Sweden ranks first with an investment of 17.1 percent.This is similar to the findings by Edquist (2011), who reports an investment rate of 16, but higher than the findings by Roth and Thum (2013), who report an investment rate of 13.6 percent over business GVA.Sweden is followed by Finland, France, Denmark and Ireland with investment rates of 15.6, 14.5, 13.4 and 13.4 percent over GVA, respectively.Such values are again higher than those found by Roth and Thum (2013).In particular, the Irish case seems noteworthy, given its low values in the literature (Roth and Thum, 2013, p. 498).
Most countries' investment rates are positioned between 9 and 12 percent, and therefore fall near the EU-16 average investment rate of 11 percent.This is in the range of the value of 9.9 percent, as reported in earlier econometric work (Roth and Thum, 2013, p. 498).The lowest investment levels can be detected in Spain, Slovakia and Greece, with values of 7.0, 6.8 and 4.5, respectively.Overall, it is noteworthy that the equal investment levels for Germany and Italywith values of 9.3 and 9.2 percentas well as the pronounced difference between Germany and France by 5.2 percentage points, were not detected in the earlier literature using INNODRIVE data (Roth and Thum, 2013, p. 498) [7].
In order to analyze the distribution of the three intangible dimensions, Figure 2 displays a scatterplot between the innovative property and economic competencies.The five countries located in the upper-right corner -Sweden, Ireland, Finland, Denmark and Francecan be classified as highly innovative and strong investors in economic competencies.In addition, four out of these five countries score high on computerized information.There are some economies, however, that are highly innovative, but which invest less in economic competencies and computerized information, such as Germany [8].The third category includes countries that score low on innovative property but high on economic competencies, namely the UK, the Netherlands and Portugal, of which only the Netherlands scores high on promoting computerized information.The fourth category contains countries that score low on both dimensions: Italy, Spain, Slovakia and Greece.Three out of these four countries also score low on computerized information.
Figure 3 compares business investments in intangible and tangible capital as used in the econometric estimation.Once intangibles are included in the asset boundary of the national accounts, the average level of investment of the 16 EU countries is 25.1 percent.This value is significantly higher than the value produced if one only considers tangible capital investment, which would be at 14.1 percent.Among the 16 EU countries, seven countries (Finland, France, Sweden, the Netherlands, the United Kingdom, Ireland and Denmark) invest more in intangibles than in tangiblestheir share of intangible/tangible investment is already greater than one percent.This is in line with the finding by Nakamura (2010), who detected this pattern for the US as early as the year 2000, but contrasts with an earlier analysis for the time period 1998-2005 (Roth and Thum, 2013, p. 500), which did not find such a pronounced pattern [9].
Figure 4 shows the time series pattern for intangible and tangible capital investment and labour productivity growth for the 16 individual EU countries and the average EU-16 pattern.Three findings are especially noteworthy.First, in line with earlier literature (Corrado et al., 2018), when analyzing an average EU-16 time series pattern, the crisis has led to a slight decline in intangible capital investment but a more pronounced decline in tangible capital.Whereas intangible capital investments have swiftly recovered, tangible capital investments have not yet recovered to pre-crisis levels.Second, the decline in investment in tangible capital has been pronounced in EA countries due to the sovereign debt crisis, particularly in Greece, Spain, Italy, Portugal and Slovenia.Conversely, with the exception of Greece, intangible capital investment has even increased in these countries in times of crisis and economic recovery.Third, the Irish case is exceptional.In times of economic recovery, Ireland   Investments in intangibles and tangibles and labour productivity in 16 EU countries (200016 EU countries ( -2015) ) has managed to more than double its intangible capital investmentslargely due to significant investments in R&D.

Econometric estimation
We estimate equation ( 1) with the help of a pooled panel (PP) estimation approach [10].To control for panel heteroscedasticity, a panel-corrected standard error estimation procedure (PCSE) was used [11].It should be noted that the PP-PCSE estimation yields the same coefficients as a random-effects estimator (see row 27 in Table III).This property permits us to compare our results directly with the econometric findings of the existing literature (Roth and Thum, 2013, pp. 501-505).Regression 1 in Table II shows the results when estimating a traditional production function without the inclusion of intangibles (excluding software, R&D, and entertainment, artistic and literary originals and mineral exploration from the tangible capital investment).Growth in tangible capital services is positively associated with labour productivity growth and has a coefficient of 0.31, which explains a 64 percent share of labour productivity growth [12].Regression 2 includes intangibles.Growth in intangible capital services positively relates to labour productivity growth with a coefficient of a magnitude of 0.38, explaining 66 percent of labour productivity growth.As can be inferred from Table I, this value is higher than the figure of 50 percent reported in earlier work (Roth and Thum, 2013, p. 502).Once intangibles are included, the impact of tangible capital diminishes to 34 percent, which is a slightly lower value than previously reported in the literature (Roth and Thum, 2013, p. 503) [13].This finding clarifies that intangible capital investments have become the dominant source of growth in EU countries.
Regression 3 in Table II analyses the relationship between intangible capital and labour productivity during times of crisis by adding a crisis (2008)(2009)(2010)(2011)(2012)(2013) interaction effect to the specification of regression 2. Regression 3 clarifies that while the relationship between tangible capital services growth and labour productivity growth actually turns negative in times of crisis, with a coefficient of À0.04 (0.28-0.32), the relationship between intangible capital services growth and labour productivity growth remains positive with a coefficient of 0.20 (0.48-0.28).To analyze this novel finding in more detail, regression 4 adds a recovery interaction effect (2014-2015) to a crisis-recovery sub-sample (2008)(2009)(2010)(2011)(2012)(2013)(2014)(2015).Regression 4 clarifies that in times of economic recovery, intangible capital services growth have a strong positive relationship to labour productivity growth.This finding is particularly evident in Ireland in 2015, where a large intangible service growth (20 percent) is related to a large labour productivity growth of (25.8 percent) (see rows 2 and 3 in Table III and Figure 4).
Regression 5 assesses which dimensions of intangible capital services are the key drivers for the positive relationship between intangible capital and labour productivity growth.It includes (1) computerized information, (2) innovative property and (3) economic competencies.In contrast to earlier work (Roth and Thum, 2013, p. 503), which finds economic competencies to be the main driver, we now find innovative property to be a strong driver (0.37) of labour productivity growth.This relationship describes the evidence in the Irish case in 2015, in which a large share of innovative property services growth is related to a large labour productivity growth.Excluding Ireland in rows 23-25 in Table III renders innovative property insignificant and re-establishes economic competencies with a coefficient of 0.17 as the main driver.In order to control for potential endogeneity, regression 6 estimates equation (1) with the help of a 2SLS estimation approach and 208 overall observations.Following earlier econometric work by Roth and Thum (2013, p. 503), lagged levels of intangible and tangible capital as instruments were chosen [14].The results clarify that while the relationship between tangible capital and labour productivity growth is Intangible capital and labour productivity rendered insignificant after controlling for endogeneity, the coefficient for intangible capital services growth remains highly significant, yielding a further increase in magnitude (0.50).The sensitivity analysis in Table III further explores the robustness of the coefficient of intangible capital on labour productivity growth, from regression 2, permitting us to conduct an analysis with a maximum of 256 observations.
Table III displays a sensitivity analysis of regression 2 in Table II.The first row shows the coefficient for the Baseline regression, regression 2 in Table II.analyze the sensitivity due to influential cases [15].When controlling for Ireland in 2015, as expected, the intangible capital coefficient declines (0.26), explaining a 46 percent share of labour productivity growth.A similar decline in magnitude (0.24 and 0.28) is found when excluding Ireland or Ireland and Greece from the country sample in rows 3 and 5. Excluding Greece in row 4 yields a higher coefficient (0.44).Excluding the three new member states in row 6 yields a slight reduction of the coefficient (0.37).Rows 7-12 restructure the country sample and analyze five distinct European regime dummies.When analyzing the 13 EU countries from 2000 to 2015 from earlier work (Roth and Thum, 2013), the relationship remains highly significant and reveals an increase in magnitude (0.52).Neither controlling for the five European regime dummies in rows 8-12, nor altering the model specifications in rows 13-22, nor using alternative estimation  1), tangible services growth, labour productivity growth and the catch-up term exclude software, R&D, and entertainment, artistic and literary originals and mineral exploration.In regressions, (2)(3)(4)(5)(6) labour productivity growth and the catch-up term are expanded with intangible capital.Tangible capital excludes residential capital.Labour productivity growth was calculated based on the GVA of the non-farm business sectors bn þ r À s (excluding real estate activities).***p < 0.01, **p < 0,05, *p < 0.1 approaches in rows 26-27 alters the significance of the relationship between intangible capital and labour productivity in any appreciable manner, although the magnitude of the relationship varies slightly.

Conclusions
This paper analyses the relationship between intangible capital investment by businesses and labour productivity growth by analyzing an EU-16 country sample over the time period 2000-2015, with the help of a cross-country growth accounting estimation approach.By matching the most recent release of the INTAN-Invest (NACE2) dataset (Corrado et al., 2018) with the latest data available from the EU KLEMS dataset (J€ ager, 2017) alongside a wide range of growth-relevant policy variables from Eurostat, the OECD and the World Bank, the paper generates the largest and most up-to-date panel dataset developed on intangible capital at the macro-level, based on a total of 256 country observations.The paper reaches three major findings.First, in line with previous growth econometric literature (Roth and Thum, 2013), the paper confirms that once intangibles are factored into Intangible capital and labour productivity the calculations, they become the dominant sourceup to 66 percentof labour productivity growth in the EU.Second, when focussing on times of crisis (2008)(2009)(2010)(2011)(2012)(2013), the paper finds that whereas the relationship between tangible capital and labour productivity turned negative, the impact of intangibles on growth remained solidly positive throughout this period.Thirdly, when accounting for the economic recovery (2014)(2015), the paper establishes a highly significant and remarkably strong relationship between intangible capital and labour productivity growth.
In light of these novel empirical results, four main policy conclusions can be drawn from our analysis of European economies.First, given the paucity of econometric findings in the literature analyzing the relationship between intangible capital and labour productivity growth at the macro level, additional research should be devoted in future to further econometrically corroborate the positive relationship between intangible capital and labour productivity.This future research should examine in more detail the evolutionary changes in existing cross-country intangible capital datasets, by country and by asset type.Second, as developed economies transition into knowledge societies, it is essential to incorporate a complete set of intangiblesincluding branding, firm-specific human capital and organizational capitalinto today's national accounting framework in order to acknowledge the pronounced shift in investment patterns from tangible to intangible investment in contemporary national accounting frameworks.The current frameworks are inadequate, as they under-represent actual levels of capital investment in European economies.Their reported levels of capital investment would undoubtedly be greater once the full range of investment in intangible capital is incorporated into the accounting framework.Third, the incorporation of a broader dimension of innovation investment seems to be an important first step in revising today's national accounting framework, particularly when focussing on the business sector.Moreover, a follow-up step consists of broadly adapting the national accounting framework to reflect environmental, health and public intangible capital investment.Fourth, government policies that actively support the accumulation of business intangibles should be designed and implemented as soon as possible.This will foremost require government investment in public intangibles, such as enhancing the quantity and quality of a highly-skilled labour force, well-functioning formal and informal institutions and a well-designed policy framework that includes credible financial conditions and an effective scheme offering intangible tax incentives at the member state and EU level [16].
Note(s): Investments are compared to GVA (non-farm business sector b-n + r-s excluding real estate activity).Softdb=Software and Databases.Minart=Entertainment, artistic and literary originals and mineral exploration.NFP=New product development costs in the financial industry.Design=Design.R&D=Research and Development.Brand=Brand Names.Org.Cap.=OrganizationalCapital.FSHC=Firm-Specific Human Capital Source(s): INTAN-Invest (NACE2) data (Corrado et al., 2018) Note(s): The dashed lines indicate the EU16 average values.AT = Austria, CZ = Czech Republic, DE = Germany, DK = Denmark, EL = Greece, ES = Spain, FI = Finland, FR = France, IE = Ireland, IT = Italy, NL = the Netherlands, PT= Portugal, SE = Sweden, SI = Slovenia, SK = Slovakia, UK = United Kingdom Source(s): INTAN-Invest (NACE2) data(Corrado et al., 2018) Figure 1.Business intangible investment (as a percentage of GVA) in 16 EU countries, 2000-2015 Figure 2. Scatterplot between innovative property and economic competencies (as a percentage of GVA), 2000-2015 CT=communications technology; IT=information technology; OCon=total non-residential capital investment; OMach=other machinery and equipment; TraEq=transport equipment; Cult=cultivated assets; IC=intangible capital.Residential Structure has been excluded.Values on top of the bars depict the intangible/tangible capital investment ratio Source(s): INTAN-Invest (NACE2) data (Corrado et al., 2018) and EUKLEMS data (Jäger, 2017) Note(s): Investment in intangibles, tangibles and labour productivity are given in millions of national currencies and are standardized to 1 in the year 2008.The continuous line indicates the start of the financial crisis in September 2008.The dashed line indicates the start of the economic recovery at the end of 2013.Adapted y-scales are applied to Greece, Ireland and Slovakia.EU-16 average is based on PPP-adjusted values Source(s): INTAN-Invest (NACE2) data(Corrado et al., 2018) Figure 3. Business tangible and intangible capital investments (as a percentage of GVA), EU16, 2000-2015