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Title An Innovation Index Based on Knowledge Capital Investment:
Author Tony Clayton, Mariela Dal Borgo, Jonathan Haskel
Year 2009
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.
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Topic revision: r4 - 26 Jan 2011, JonathanHaskel
 

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