OECD Economic Policy Papers

ISSN :
2226-583X (online)
DOI :
10.1787/2226583x
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The OECD Economic Policy Papers series is designed to make available selected studies on structural and macro-economic policy issues of current interest. The Papers are produced in the context of the work carried out on the two regular OECD titles, OECD Economic Outlook and Going for Growth.
 

Knowledge-Based Capital, Innovation and Resource Allocation

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Author(s):
Dan Andrews1, Chiara Criscuolo1
Author Affiliations
  • 1: OECD, France

Publication Date
28 May 2013
Bibliographic information
No.:
4
Pages
55
DOI
10.1787/5k46bh92lr35-en

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Investment in knowledge-based capital (KBC) – assets that have no physical embodiment, such as computerised information, innovative property and economic competencies – has been rising significantly. This has implications for innovation and productivity growth and requires new thinking on policy. The returns to investing in KBC differ significantly across countries and are partly shaped by structural policies, which influence the ability of national economies to reallocate scarce resources to firms that invest in KBC. In this regard, well-functioning product, labour and venture capital markets and bankruptcy laws that do not overly penalise failure can raise the expected returns to investing in KBC by improving the efficiency of resource allocation. While structural reforms offer the most cost-effective approach to raising investment in KBC, there is a role for innovation policies to raise private investment in KBC towards socially optimal levels. Indeed, R&D tax incentives and, as a finding that contrasts with previous research, direct support measures can be effective, but design features are crucial in order to minimise the fiscal cost and unintended consequences of such policies. Well-defined intellectual property rights (IPR) are also important to provide firms with the incentive to innovate and to promote knowledge diffusion via the public disclosure of ideas. However, such IPR regimes need to be coupled with pro-competition policies to ensure maximum effect while the rising costs of the patent system in emerging KBC sectors may have altered the trade-off inherent to IPR between the incentives to innovate and the broad diffusion of knowledge.
Keywords:
intangible assets, reallocation, growth, innovation
JEL Classification:
  • L20: Industrial Organization / Firm Objectives, Organization, and Behavior / General
  • O30: Economic Development, Technological Change, and Growth / Technological Change; Research and Development; Intellectual Property Rights / General
  • O40: Economic Development, Technological Change, and Growth / Economic Growth and Aggregate Productivity / General