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Decoding Microsoft: Intangible Capital as a Source of Company Growth

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  • Charles R. Hulten

Abstract

A great deal of research has been devoted to the effects of technical change on economic growth. Less attention has been given to the factors driving the growth of the technological innovators themselves. This paper examines the case of one of the central contributors to the IT revolution, the Microsoft Corporation. The company's sources of growth are estimated using the conventional Solow-Jorgenson-Griliches "residual" model, expanded to include investments in product research and development, sales and marketing, and organizational development (collectively termed the company's "intangible" capital). The picture of Microsoft that emerges from this analysis is a story about the successful use of knowledge inputs to produce knowledge outputs. It is also a story of the importance of product innovation, rather than process innovation, as a source of total factor productivity growth. The theoretical underpinnings of the empirical analysis are also examined, and a model is sketched in which the neoclassical growth accounting framework is linked to the theoretically messier world of the Schumpeterian competitor via the Berndt-Fuss theorem on capital utilization.

Suggested Citation

  • Charles R. Hulten, 2010. "Decoding Microsoft: Intangible Capital as a Source of Company Growth," NBER Working Papers 15799, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:15799
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    3. Ellen R. McGrattan & Edward C. Prescott, 2012. "The Labor Productivity Puzzle," Book Chapters, in: Lee E. Ohanian & John B. Taylor & Ian J. Wright (ed.), Government Policies and the Delayed Economic Recovery, chapter 6, Hoover Institution, Stanford University.
    4. von Maydell, Richard, 2024. "Artificial Intelligence and its Effect on Competition and Factor Income Shares," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277654, Verein für Socialpolitik / German Economic Association, revised 2024.
    5. Li, Qing & Vo, Long Hai & Wu, Yanrui, 2019. "Intangible capital distribution in China," Economic Systems, Elsevier, vol. 43(2), pages 1-1.
    6. Frank Nagle, 2019. "Open Source Software and Firm Productivity," Management Science, INFORMS, vol. 65(3), pages 1191-1215, March.
    7. Szalavetz, Andrea, 2012. "Az immateriális beruházások és a nem közvetlenül a termelésben foglalkoztatottak szerepe a gazdasági felzárkózásban [The role intangible investments and non-production workers play in economic catc," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1187-1206.
    8. Carol Corrado & Jonathan Haskel & Cecilia Jona-Lasinio & Massimiliano Iommi, 2022. "Intangible Capital and Modern Economies," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 3-28, Summer.
    9. Paul W. Miniard & Rama K. Jayanti & Cecilia M. O. Alvarez & Peter R. Dickson, 2018. "What brand extensions need to fully benefit from their parental heritage," Journal of the Academy of Marketing Science, Springer, vol. 46(5), pages 948-963, September.

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    More about this item

    JEL classification:

    • O32 - Economic Development, Innovation, Technological Change, and Growth - - Innovation; Research and Development; Technological Change; Intellectual Property Rights - - - Management of Technological Innovation and R&D
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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