Working Paper: NBER ID: w25869
Authors: Nicolas Crouzet; Janice C. Eberly
Abstract: We document that the rise of factors such as software, intellectual property, brand, and innovative business processes, collectively known as “intangible capital” can explain much of the weakness in physical capital investment since 2000. Moreover, intangibles have distinct economic features compared to physical capital. For example, they are scalable (e.g., software) though some also have legal protections (e.g., patents or copyrights). These characteristics may have enabled the rise in industry concentration over the last two decades. Indeed, we show that the rise in intangibles is driven by industry leaders and coincides with increases in their market share and hence, rising industry concentration. Moreover, intangibles are associated with at least two drivers of rising concentration: market power and productivity gains. Productivity gains derived from intangibles are strongest in the Consumer sector, while market power derived from intangibles is strongest in the Healthcare sector. These shifts have important policy implications, since intangible capital is less interest-sensitive and less collateralizable than physical capital, potentially weakening traditional transmission mechanisms. However, these shifts also create opportunities for policy innovation around new market mechanisms for intangible capital.
Keywords: Intangible Capital; Market Concentration; Capital Investment; Productivity; Policy Implications
JEL Codes: E22
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| rise in intangible capital (E22) | investment gap (E22) |
| intangible assets replacing physical assets (O34) | decline in physical capital investment (E22) |
| larger market shares (L19) | increase in industry concentration (L69) |
| rise in intangible capital (E22) | decline in physical capital investment (E22) |
| higher intangible capital intensity (E22) | larger market shares (L19) |