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

Author

Listed:
  • Clayton, Tony

    (Office of National Statistics)

  • Dal Borgo, Mariela

    (University of Warwick)

  • Haskel, Jonathan

    (Imperial College London)

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.

Suggested Citation

  • Clayton, Tony & Dal Borgo, Mariela & Haskel, Jonathan, 2009. "An Innovation Index Based on Knowledge Capital Investment: Definition and Results for the UK Market Sector," IZA Discussion Papers 4021, Institute of Labor Economics (IZA).
    • Handle: RePEc:iza:izadps:dp4021
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    References listed on IDEAS

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    1. Carol Corrado & Charles Hulten & Daniel Sichel, 2005. "Measuring Capital and Technology: An Expanded Framework," NBER Chapters, in: Measuring Capital in the New Economy, pages 11-46, National Bureau of Economic Research, Inc.
    2. Marcel P. Timmer & Mary O’Mahony & Bart van Ark, 2007. "EU KLEMS Growth and Productivity Accounts: An Overview," International Productivity Monitor, Centre for the Study of Living Standards, vol. 14, pages 71-85, Spring.
    3. Carol Corrado & John Haltiwanger & Daniel Sichel, 2005. "Measuring Capital in the New Economy," NBER Books, National Bureau of Economic Research, Inc, number corr05-1.
    4. Aghion, Philippe & Howitt, Peter, 2005. "Growth with Quality-Improving Innovations: An Integrated Framework," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 2, pages 67-110, Elsevier.
    5. Philippe Aghion & Peter Howitt, 2007. "Capital, innovation, and growth accounting," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 23(1), pages 79-93, Spring.
    6. Mokyr, Joel, 2005. "Long-Term Economic Growth and the History of Technology," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 17, pages 1113-1180, Elsevier.
    7. Mauro Giorgio Marrano & Jonathan Haskel & Gavin Wallis, 2009. "What Happened To The Knowledge Economy? Ict, Intangible Investment, And Britain'S Productivity Record Revisited," Review of Income and Wealth, International Association for Research in Income and Wealth, vol. 55(3), pages 686-716, September.
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    Cited by:

    1. Konstantinos A. Melachroinos & Nigel Spence, 2013. "Intangible Investment and Regional Productivity in Great Britain," Regional Studies, Taylor & Francis Journals, vol. 47(7), pages 1048-1064, July.
    2. Edquist, Harald, 2011. "Intangible Investment and the Swedish Manufacturing and Service Sector Paradox," Working Paper Series 863, Research Institute of Industrial Economics.
    3. Mehmet Ugur & Sefa Awaworyi Churchill & Edna Solomon, 2018. "Technological Innovation And Employment In Derived Labour Demand Models: A Hierarchical Meta†Regression Analysis," Journal of Economic Surveys, Wiley Blackwell, vol. 32(1), pages 50-82, February.
    4. Estelle P. Dauchy, 2013. "The Efficiency Cost of Asset Taxation in the U.S. after Accounting for Intangible Assets," Working Papers w0199, Center for Economic and Financial Research (CEFIR).
    5. Ugur, Mehmet & Awaworyi, Sefa & Solomon, Edna, 2016. "Technological innovation and employment in derived labour demand models: A hierarchical meta-regression analysis," MPRA Paper 73557, University Library of Munich, Germany.
    6. Giuliana Battisti & Paul Stoneman, 2019. "Defining and Measuring the Innovativeness of Firms," Economic Statistics Centre of Excellence (ESCoE) Discussion Papers ESCoE DP-2019-19, Economic Statistics Centre of Excellence (ESCoE).
    7. Goodridge, PR, 2014. "UK Innovation Index 2014," Working Papers 19156, Imperial College, London, Imperial College Business School.
    8. Ugur, Mehmet, 2019. "Innovation, technology adoption and employment: Evidence synthesis," Greenwich Papers in Political Economy 28307, University of Greenwich, Greenwich Political Economy Research Centre.
    9. Haskel, J & Goodridge, P & Wallis, G, 2012. "UK Innovation Index: productivity and growth in UK industries," Working Papers 9786, Imperial College, London, Imperial College Business School.
    10. Crass, Dirk & Licht, Georg & Peters, Bettina, 2014. "Intangible assets and investments at the sector level: Empirical evidence for Germany," ZEW Discussion Papers 14-049, ZEW - Leibniz Centre for European Economic Research.

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    More about this item

    Keywords

    innovation; productivity growth;

    JEL classification:

    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts

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