The Role of Intangible Investment on Economic Growth in Japan

A number of empirical studies on intangibles have shown that the accumulation of intangibles contributes to productivity growth. We overview the effects of intangible investment on the Japanese economy by using data at the aggregate and firm levels. Our estimates show that the amount of intangible investment in Japan was almost 40 trillion yen per annum in the 2000s, and its ratio to gross domestic product (GDP) is about 7%. However, as the growth rate of intangibles in Japan was low in the 2000s, the contribution of intangibles to productivity was the lowest among the advanced countries. When we compare intangible investment by industry between Japan and Korea, in some IT-intensive service industries, the amount in Japan is lower than that in Korea. Intangible investment, in particular, organizational investment including organizational management and human resource management, is also crucial for firm growth. Using the interview surveys on management practices based on the influential Bloom and Van Reenen's study, we compare management scores between Japan and Korea. Although the overall management score in Japan is higher than that in Korea, the gap has contracted. We also find that management score is positively correlated with organizational reform, IT utilization, and human resource management which takes employees' specialties seriously. The results of our survey show that the complimentary role of intangibles' other assets is crucial for productivity growth at the aggregate and firm levels. Thus, the government should take more comprehensive investment enhancing policies, considering the role of intangibles.