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.

Key findings

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 rises in labour input rates in some 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 7. ). 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.

Information on data for Israel: http://dx.doi.org/10.1787/888932315602.

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, 2004).

Sources and further reading

OECD Productivity Statistics (database), http://dx.doi.org/10.1787/pdtvy-data-en.

OECD (2009), Measuring Capital – OECD Manual, http://dx.doi.org/10.1787/9789264068476-en.

OECD (2009), Handbook on Deriving Capital Measures of Intellectual Property Products, http://dx.doi.org/10.1787/9789264079205-en.

Schreyer, P. (2004), “Capital Stocks, Capital Services and Multi-Factor Productivity Measures”, OECD Economic Studies, Vol. 2003/2, http://dx.doi.org/10.1787/eco_studies-v2003-art11-en.

Figure 2.13. Growth in capital productivity
Total economy, percentage change at annual rate
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 StatLink http://dx.doi.org/10.1787/888933733809

Figure 2.14. Contributions of ICT and non-ICT capital to total capital services
Total economy, percentage change at annual rate
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 StatLink http://dx.doi.org/10.1787/888933733828

Figure 2.15. Share of ICT investment
Total economy, current prices, as a percentage of non-residential gross fixed capital formation
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 StatLink http://dx.doi.org/10.1787/888933733847

Figure 2.16. Share of investment in intellectual property products
Total economy, current prices, as a percentage of gross fixed capital formation
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 StatLink http://dx.doi.org/10.1787/888933733866

Figure 2.17. Investment in tangible assets and intellectual property products
Total economy, constant prices, index 2007=100
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 StatLink http://dx.doi.org/10.1787/888933733885

Figure 2.18. Gross fixed capital formation by asset type, 2016 or latest available year
Total economy, as a percentage of total gross fixed capital formation
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 StatLink http://dx.doi.org/10.1787/888933733904