Intangible Capital and Productivity Divergence

Abstract

Understanding the causes of the slowdown in aggregate productivity growth is key to maintaining the competitiveness of advanced economies and ensuring long-term economic prosperity. This paper is the first to provide evidence that investment in intangible capital, despite having a positive effect on productivity at the micro level, is a driver of the weak productivity performance at the aggregate level as it amplifies the divergence between a group of “frontier” firms and the rest of the economy. Using firm-level data, we find that the effect of intangible capital on productivity is heterogeneous across firms within industries. Documenting the existence of divergence in productivity growth between top intangible users and the rest of firms at the industry level, we find that industries where this gap is larger are also those industries where the heterogeneity in the effect of intangible capital is highest and where average productivity growth was lower. Thus, the evidence supports the view that the use of intangible capital plays a role in explaining weak aggregate productivity growth, by intensifying differences between firms.

Keywords: Intangible capital, Firm dynamics, Productivity divergence

JEL Classification: E22, D24, L25, O14, O30, O47