Intangibles and national economic wealth – a new perspective on how they are linked

Abstract

Purpose – The purpose of this paper is to examine to what extent national intangible capital (NIC) explains GDP growth and to assess its impact on GDP formation in different countries. The paper brings a new perspective to explaining hidden economic drivers. Design/methodology/approach – The paper introduces a new theoretically and computationally justified method, so-called ELSS model that is based on expansion and augmentation of the Cobb-Douglas production function with a wide range of NIC indicators. The method is applied by using the database that contains NIC indices for 48 countries covering the period from 2001 to 2011. Findings – The results show that intangible capital accounts for 45 per cent of world GDP. The figure for the USA is 70.3 per cent and for the European Union 51.6 per cent. The Nordic countries stand out with a higher figure at 64.7 per cent, with NIC contributing to 72.5 per cent of GDP in Sweden, 69.7 per cent in Finland and 67.6 per cent in Denmark. Research limitations/implications – The expanded Cobb-Douglas production function is sensitive to valuations of capital inputs and sensitive to estimates of production shares for various augmenting and expanding inputs. Therefore further work is needed to develop and test methodologies for the assessment of all of these. Practical implications – ELSS production function helps to give a realistic picture of the value and impact of NIC and accordingly gives evidence for accurate investment decisions for the future. Social implications – The method will help policy makers figure out what steps are needed to reduce the cross-country NIC differences. Originality/value – The authors have uncovered the value of NIC beyond monetary inputs, and at the same time taken account of country specifics. The ELSS formula is comprehensive yet not too complicated to replicate. The approach significantly contributes to the development of the current research tradition into intangibles.