The Productivity J-Curve: How Intangibles Complement General Purpose Technologies

55 Pages Posted: 16 Oct 2018 Last revised: 20 Mar 2022

See all articles by Erik Brynjolfsson

Erik Brynjolfsson

National Bureau of Economic Research (NBER); Stanford

Daniel Rock

University of Pennsylvania - Operations & Information Management Department

Chad Syverson

University of Chicago - Booth School of Business; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 2018

Abstract

General purpose technologies (GPTs) such as AI enable and require significant complementary investments, including co-invention of new processes, products, business models and human capital. These complementary investments are often intangible and poorly measured in the national accounts, even when they create valuable assets for the firm. We develop a model that shows how this leads to an underestimation of productivity growth in the early years of a new GPT, and how later, when the benefits of intangible investments are harvested, productivity growth will be overestimated. Our model generates a Productivity J-Curve that can explain the productivity slowdowns often accompanying the advent of GPTs, as well as the increase in productivity later. We use our model to analyze empirically the historical roles of intangibles tied to R&D, software, and computer hardware. We find substantial and ongoing Productivity J-Curve effects for software in particular and computer hardware to a lesser extent. Our adjusted measure TFP is 11.3% higher than official measures at the end of 2004, and 15.9% higher than official measures at the end of 2017. We then assess how AI-related intangible capital may be currently affecting measured productivity and find the effects are small but growing.

Suggested Citation

Brynjolfsson, Erik and Rock, Daniel and Syverson, Chad, The Productivity J-Curve: How Intangibles Complement General Purpose Technologies (October 2018). NBER Working Paper No. w25148, Available at SSRN: https://ssrn.com/abstract=3266241

Erik Brynjolfsson (Contact Author)

National Bureau of Economic Research (NBER) ( email )

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Stanford ( email )

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HOME PAGE: http://brynjolfsson.com

Daniel Rock

University of Pennsylvania - Operations & Information Management Department ( email )

Philadelphia, PA 19104
United States

Chad Syverson

University of Chicago - Booth School of Business ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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