Three essays on the size and contribution of intangible investment to the overall capital stock
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This thesis aims to contribute to a better understanding of the overall magnitude of intangible investment and the impact of this intangible investment on the behavior of the capital stock and on the value of capital goods. I begin by constructing a data set to document firms’ expenditures on an identi- fiable list of intangible items in Canada. I then examine the implications of treating intangible spending as the acquisition of final (investment) goods on estimates of GDP growth for Canada. I find that investment in intangible capital by 2002 is almost as large as the investment in physical capital. Furthermore, the growth in GDP and labor productivity may be underestimated by as much as 0.1 percentage point per year during this same period. I proceed by measuring the size of the stock of the intangible capital in Canada using newly released data on the market value of all securities in the economy. The approach taken relies on a quantitative application of the q-theory of investment to generate the quantity of capital owned by firms. I find that the intangible capital stock accounted for approximately 30% of overall capital since 1994. Of this, the R&D reported by national accounts makes up only 23%. These results imply that official Canadian statistics failed to account for 26% of the value of the capital stock in their 2005 quarterly data collection. Finally, I extend the q-theory of investment to model explicitly the decision of firms to invest in intangibles. I then use the model to measure the contribution of intangible goods to the overall capital stock in the U.S. The model departs from the one mentioned earlier in that it highlights the embodiment of intangible goods in tangibles and the role of relative price movements in the measurement of the contribution of each type of investment to the overall capital stock. I find that the growth in the overall capital stock from the late-80s until 2000 was driven mainly by an increase in the contribution of intangibles. However, the contribution of intangibles fell consistently after 2000. These results underscore the importance of accounting for the movements in the price of intangibles rather than focusing only on their rising share in overall investment.
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