Measurement of Intangible Investments by Industry and Its Role in Productivity Improvement Utilizing Comparative Studies between Japan and Korea

Using the Japan Industrial Productivity (JIP) database and other primary statistics, we estimate intangible investments in Japan at the industry level. Comparing our estimates with Korean ones measured by Professor Chun, intangible investment/gross value added (GVA) ratios in Japan are higher than those in Korea in many industries. However, in some service industries, Korean intangible investments are larger than their Japanese counterparts. Although intangible capital stock in 2008 was 136 trillion yen, the growth rate in intangibles became negative in some industries in Japan in the 2000s due to harsh restructuring. When we examine the impacts of intangible investments on total factor productivity (TFP) growth, we find a significant and positive effect on it in the market economy after the IT revolution. However, in the service sector, we do not find any clear evidence of the effect of intangibles. The estimation results show that the government should improve its management skills to utilize intangible assets effectively through deregulation in the service sector.