Do Intangibles Contribute to Productivity Growth in East Asian Countries? Evidence from Japan and Korea

Using the Japan Industrial Productivity (JIP) and the Korea Industrial Productivity (KIP) databases and other primary statistics in Japan and Korea, we estimate intangible investment in Japan and Korea at the industry-level. Comparing our estimates from two-country data, we find that the growth in intangible investment in Korea has exceeded that in Japan in the past 30 years. Intangible investment/gross value added (GVA) ratios in the machinery industries in Japan are higher than in Korea, because Japanese machinery industries are research and development (R&D) intensive. On the other hand, ratios in some service industries in Korea are higher than in Japan, because Korean service industries are information and communications technology (ICT)-intensive. When we conduct growth accounting analysis with intangibles, we find that the contribution of intangible investment to economic growth after 1995 in Japan decreased significantly. In addition, the contribution of intangibles to productivity growth in Japan after 1995 is lower than not only Korea but also the European Union (EU) countries and the United States. The lack of synergy effects between ICT and intangibles in Japan may be the cause of low productivity growth in the 2000s.