MERIT-Infonomics Research Memorandum series Sources of growth: Measuring the knowledge based economy

For seven European countries macro-level indicators of the accumulation of intangible capital are developed. Using hedonic prices deflate investments in IT hardware, IT software and telecommunication equipment, for both intangibles and ‘smart’ tangibles capital stocks are constructed. These capital stock data are then used as an input to analyse the productivity effects for the business sector in the 1990s of all components, including traditional inputs like labour and (raw) capital. Increases in labour productivity can be explained by both an increase in labour quality and a further increase in capital deepening, esp. in the deepening of ICT capital. Several sensitivity analyses are carried out to test the robustness of the results for changes in the parameter assumptions in constructing the investment series and capital stocks.