Sources of Labor Productivity Growth in the EU and the US: the Role of Intangible and ICT Capital

This paper provides a growth accounting analysis of the sources of labor productivity growth in the business sector of 13 EU Member States and the US in the years 1995-2009. The aim of the analysis is to provide new evidence on the role of intangible and ICT capital as drivers of economic growth. We adopt the approach first proposed by Corrado, Hulten and Sichel and we extend the standard growth accounting model treating a broad range of firm expenditures for intangibles as investments that create future value. Our main results are the following: Capitalizing intangibles increases labor productivity growth in the period 1995-2009 with respect to labor productivity growth estimated from current national accounts data; Capital deepening was the dominant source of growth in 11 out of the 14 countries included in the analysis and in the other three its contribution was very close to the contribution of multi factor productivity growth; The contribution of ICT capital and Intangible non-ICT capital to labor productivity growth was quite high in all countries that performed relatively well in terms of labor productivity growth; When focusing on the US and the EU15 countries, there is a positive relationship between the growth of ICT and Intangible non-ICT capital deepening and the growth of multifactor productivity.