Intangible Assets and Their Contribution to Labour Productivity Growth in Ontario

Recent empirical studies confirm that the contribution of intangible capital investment to labour productivity growth is comparable to that of tangible capital investment for a wide range of countries, including the United States, the United Kingdom, Canada, Germany, and France. Following Corrado et al. (2005) and Baldwin et al. (2012), this article assesses business sector investment in intangible assets and analyses the contribution of intangible capital to business sector labour productivity growth at the provincial level in Canada, in particular in Ontario. The results of this growth accounting exercise demonstrate that intangible capital contributes significantly to labour productivity growth in Ontario. In 1998-2008 intangible capital contributed on average 26.2 per cent to labour productivity growth while tangible capital contributed 17.9 per cent and labour composition contributed 8.7 per cent. Innovative property contributed the most among all categories of intangible capital, followed by economic competencies and computerized information. Research has highlighted the important role played by intangible capital, such as the knowledge embodied in the workforce, business plans and practices, and brand names. This research suggests that technological progress and the accumulation of intangible capital together accounted for well over half of the increase in output per hour in the United States during the past several decades.