An Innovation Index Based on Knowledge Capital Investment: Definition and Results for the UK Market Sector

45 Pages Posted: 2 Mar 2009

See all articles by Tony Clayton

Tony Clayton

Government of the United Kingdom - Office for National Statistics

Mariela Dal Borgo

Bank of Mexico, Financial Stability Directorate

Jonathan Haskel

Imperial College Business School; Centre for Economic Policy Research (CEPR); IZA Institute of Labor Economics

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Abstract

We (a) propose an implementable innovation index, (b) relate it to existing innovation definitions and (c) show whole-economy and industry-specific results for the UK market sector, 2000-2005. Our innovation measure starts by observing that we could get more GDP without innovation by simply duplicating existing physical capital and labour (e.g. adding a second aircraft and crew on an existing route). Thus we propose to measure innovation as the additional GDP over and above the addition existing physical capital and labour. In our measure this is the contribution to GDP growth of market sector investment in knowledge (or intangible) capital. This contribution is measured from company spending on knowledge/intangible assets and TFP growth. We relate our measure to the literature on innovation definitions, TFP, creative industries and hidden innovation. We implement it for six UK market sector industries, 2000-2005, combining with output and tangible investment data from the EUKLEMS database. Our main findings are as follows. Over 2000-2005, market sector labour productivity grew at 2.74% per annum, of which the contribution of knowledge capital, our innovation measure, was 1.24% pa. In turn, manufacturing accounted for about 60% of this latter figure. If one includes increase in labour skill deepening (0.45% pa) as innovation, then innovation contributed 61% (=(1.24+0.45)/2.74)of labour productivity growth over the period.

Keywords: innovation, productivity growth

JEL Classification: O47, E22, E01

Suggested Citation

Clayton, Tony and Dal Borgo, Mariela and Haskel, Jonathan, An Innovation Index Based on Knowledge Capital Investment: Definition and Results for the UK Market Sector. IZA Discussion Paper No. 4021. Available at SSRN: https://ssrn.com/abstract=1351185

Tony Clayton (Contact Author)

Government of the United Kingdom - Office for National Statistics ( email )

London, SW1A 2AA
United Kingdom

Mariela Dal Borgo

Bank of Mexico, Financial Stability Directorate ( email )

Av. 5 de Mayo 2
Mexico City, 06059
Mexico

Jonathan Haskel

Imperial College Business School ( email )

South Kensington Campus
Exhibition Road
London SW7 2AZ, SW7 2AZ
United Kingdom
020 7594 8563 (Phone)
020 7594 5915 (Fax)

Centre for Economic Policy Research (CEPR)

London
United Kingdom

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

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