Investments in Intangible Assets and Australia’s Productivity Growth — Sectoral Estimates

This Productivity Commission staff working paper (by Paula Barnes) examines sectoral investment in intangible assets in Australia following on from a previous paper on an examination of intangibles assets in the market sector as a whole. It highlights some significant issues relating to the measurement of intangibles and their contribution to productivity, finding that estimates of intangibles at the aggregate level mask considerable sectoral differences. In recent years increased attention has been given to the contribution to economic growth of intangible assets such as knowledge, firm-specific skills and better ways of doing business. But most intangibles are treated as current expenses in official statistics, rather than as assets — despite the fact that they provide services in more than one period. This makes it difficult to examine their role in the economy. It leads to an understatement of investment in the economy and may also affect measures of productivity growth. This paper addresses two questions: does the importance of intangibles as part of total investment vary across sectors?; and does the exclusion of many intangibles from investment measurement affect the measures of sectoral economic growth and productivity? The views expressed in this paper are those of the staff involved and do not necessarily reflect those of the Productivity Commission.