Capital productivity and the role of ICT and intangible assets
Capital productivity shows how efficiently capital is used to generate output. Investment in information and communication technologies (ICT) enables new technologies to enter the production process and is seen as an important driver of productivity growth. Investment in intellectual property products, such as R&D, not only contributes to expand the technological frontier but also enhances the ability of firms to adopt existing technologies, playing an important role in productivity performance.
Declining costs of using capital relative to labour and the resulting fall in the use of labour input per unit of capital services have led to a fall in capital productivity in most OECD countries over the past 20 years. Some of the decline in overall costs of capital relates to ICT assets where new products’ prices have typically fallen very rapidly, and which in turn may have spurred the increased use of ICT in production. In fact, the shares of ICT assets in total non-residential investment increased in nearly all countries over the last two decades.
However, the pace of decline in capital productivity has been less pronounced since the crisis, partly reflecting the sluggish recovery in investment in tangible assets and substantial increases in labour utilisation in many countries, and the possibility that firms have extended the service lives of capital. Investment in intellectual property products has however performed much better; indeed, while there are still significant differences across countries, investment in intellectual property products, in particular, in R&D, has accounted for an increasing share of total investment in most economies over the past 20 years.
Definition
Capital productivity is measured as the ratio between the volume of output, measured as GDP, and the volume of capital input, defined as the flow of productive services that capital delivers in production, i.e. capital services (Chapter 8. ). Series of gross fixed capital formation by asset type are used to estimate productive capital stocks and to compute an aggregate measure of total capital services, in line with the asset boundary of the System of National Accounts 2008 (2008 SNA). ICT capital includes: i) computer hardware; ii) telecommunications equipment; and iii) computer software and databases. Non-ICT capital includes: i) non-residential construction; ii) transport equipment; iii) other machinery and equipment and weapons systems; iv) R&D; v) other intellectual property products.
While the 2008 SNA recognises a number of intellectual property assets (i.e. R&D, computer software and databases, mineral exploration and evaluation costs and artistic and literary originals), other forms of knowledge-based assets such as organisational capital, brand-equity, copyrights and design, can play an important role for GDP growth and productivity. Their exclusion from the SNA asset boundary, and therefore from the capital services measures here presented, relies on the practical difficulties involved in their measurement.
Comparability
Countries use different approaches to deflate ICT investment, where constant quality price changes are particularly important but difficult to measure, and assume different depreciation rates and assets’ service lives. To counteract for these differences, the OECD computes aggregate measures of capital services using a set of harmonised ICT investment deflators as well as common depreciation rates and average service lives for the different assets across countries (Schreyer, 2002).
References
OECD Productivity Statistics (database), https://doi.org/10.1787/pdtvy-data-en.
OECD (2009), Handbook on Deriving Capital Measures of Intellectual Property Products, https://doi.org/10.1787/9789264079205-en.
OECD (2009), Measuring Capital – OECD Manual, https://doi.org/10.1787/9789264068476-en.
Schreyer, P. (2002), “Computer prices and international growth and productivity comparisons”, Review of Income and Wealth, Series 48, Number 1.
