The intangible economy in Spain

THE INTANGIBLE ECONOMY IN SPAINEVOLUTION AND DISTRIBUTION BY REGIONS AND SECTORS (1995-2014)

Matilde Mas and Javier Quesada (Dirs.)

Award-winning project of the Cotec Foundation for Innovation’s 2016 PIA Program

MADRID, 25 APRIL 2017

The New Information and Communication Technologies (ICT):

Have transformed the production process of many existing economic sectors as they promote robotisation and automation

Have led to the creation of new sectors and new ways of doing things

Are one of the reasons behind the phenomenon of globalization

And the fragmentation of production processes in different phases (global value chains)

These changes are generally known as Knowledge Economy

Knowledge economy and intangibles

The new ways to produce as a result of ICT demand:

Changes (often drastic) in the organisational structure of firms:

Organisational chart and work methods,

More horizontal decision making,

Dominated by teamwork and multicultural and multidisciplinary environment

Increase sophistication with the design of new products (customise)

Create a brand image which sets it apart from simple commodities;

Win the loyalty of clients/customers;

Having skilled and on-the-job trained workers

In other words, to invest in intangible assets

Knowledge economy and intangibles

Classification of intangible assets

Note: The colour indicates the group it belongs to (grey = IAGDP; blue = IABGDP).

Source: Own elaboration.

“Any use of resources that reduces current consumption in order to increase it in the future qualifies as an investment”

- Corrado, Hulten y Sichel (2005, 2009).

The largest change is that spending on intangibles has the same status as the purchase of new machinery, equipment, or the construction of factories, now considered investment goods instead of intermediate consumption.

Distinction between IAGDP and IABGDP

The inclusion of intangibles in the National Accounts would raise Spain’s GDP level by 3,5%

1. Computerised information (software and databases)

2. Innovative property

2a. R&D

2b. Mineral exploration and entertainment and artistic originals

2c. Design and other new products/systems

3. Economic competencies

3a. Advertising

3b. Market research

3c. Firm-specific resources (employer-provided training)

3d. Organizational structure

3d.i. Acquired organizational structure

3d.ii. Own organizational structure

Total intangible assets included in GDP = IAGDP (1+2a+2b)

Total intangible assets “beyond GDP”B = IABGDP (2c+3)

Total intangible assets = IA = IAGDP + IABGDP (1+2+3)

What are intangibles assets?

The empirical evidence available leads to the following conclusions:

1. Intangible investment is an important source of productivity growth: between one-fifth and one-third in the US economy (Corrado, Hulten and Sichel, 2009) and the European Union (Corrado, Haskel, Jona-Lasinio and Iommi, 2012 and 2014)

2. ICT and intangible assets are complementary: productivity growth is higher when used jointly (Basu et al., 2004; Acharya and Basu, 2010)

3. Intangibles generate spillover effects: increasing not only the productivity of the sectors directly invested in, but also that of other sectors of the economy (Corrado, Haskel and Jona-Lasinio, 2014).

The information currently available on intangible investment is limited mainly to highly developed countries and always at national level.

Intangibles and productivity growth

This is the first study that offers disaggregated information by regions for Spain’s 17 autonomous communities and 2 autonomous cities in an international context. Additionally, it includes a broad sectoral breakdown (27 sectors), making it unique in the European Union, not only at regional but also national level due to its detail by industry.

The database included in the study allows:

To position Spain and its region in relation to other EU countries and the US

To analyse Spain’s trajectory in the 1995-2014 period, during its expansion phase and subsequent crisis and emerging economic recovery

To observe the differences/similarities in intangible endowments in Spain’s autonomous communities as well as the convergence/divergence among them.

To compare the impact of intangibles on national/regional productivity at the same level as tangible capital, ICT and human capital already available.

Intangibles and productivity growth

Tangible and intangible investment over extended GDP: TAGDP, IAGDP and IABGDP. Private sector. Mean 1995-2010 (percentage))

Source: Cotec Foundation-Ivie, BBVA Foundation-Ivie, INE, Mas and Quesada (2014), INTAN-Invest and own elaboration.

Spain in an international context

Spain is at the same level as other advanced countries in tangible assets

However, it lags behind, along with Italy, in intangible assets

The problem is the quantity, not its composition

US investment in intangibles surpasses that of tangibles, while UK investment in intangibles and tangibles is practically the same

Sp

ain

Investment included in GDP and “beyond GDP”: TAGDP, IAGDP and IABGDP, 1995-2014 (percentage)

Source: Cotec Foundation-Ivie, BBVA Foundation-Ivie and INE.

Real investment: TAGDP, IAGDP and IABGDP, 1995-2014 (1995=100)


The impact of the crisis

The economic crisis has affected more severely investments in tangible assets than in intangible

Composition of investment in IAGDP by assets, 2010 (percentage)

Source: BBVA Foundation-Ivie, INTAN-Invest and own elaboration.

The problem with IAGDP is the quantity (less invested) and not so much the composition (the structure is similar to that of other countries)

Composition of intangible assets. IAGDP

Sp

ain

Composition of investment in IABGDP by assets, 2010 (percentage)

Fuente: Fundación Cotec-Ivie, Mas y Quesada (2014), INTAN-Invest y elaboración propia.

Composition of intangible assets. IABGDP

However, regarding IABGDP, the problem is both with quantity and composition.

Spain invests 50% in advertising and design, while the other countries invest up to 50% only on improving firms’ organizational structure

Investment in intangible assets (IA) over extended GDP. Spain’s autonomous communities. 2013 (Spain = 100)


β-Convergence among Spain’s autonomous communities. IA


Inequality and β-Convergence. IA

Madrid is in the lead, followed by Catalonia and Navarre. More intensive investment in intangible assets in the periphery.

Tendency to convergence among regions (those with less intangible endowments in 1995 have experienced greater growth rates)

Investment in IABGDP over extended GDP. Spain’s autonomous communities. 2014 (Spain = 100, porcentaje)


β-Convergence among Spain’s autonomous communities.IABGDP


Inequality and β-Convergence. IABGDP

Madrid is in a prominent position. Greater gap between the “two Spains” (less intensive ring in the centre).

Tendency to converge

Investment in IAGDP over extended GDP. Spain’s autonomous communities. 2013 (Spain = 100, percentage)


β-Convergence among Spain’s autonomous communities. IAGDP


Inequality and β-Convergence. IAGDP

Madrid stays in the lead. Fewer differences in IAGDP than in IABGDP.

The tendency to converge is less intense

Dispersion of tangible and intangible investment over expanded GDP. Spain’s autonomous communities, 1995-2013 (variation coefficient)

Note: Excluding Ceuta and Melilla. Source: Cotec Foundation-Ivie, BBVA Foundation-Ivie, INE and own elaboration.

Greater interregional differences in intangibles than tangibles

Greater differences in IABGDP than IAGDP (and also IA)

Evolution over time:

Reduction in the interregional differences in IA and IAGDP during the expansion

Increase in the differences during the crisis, both in intangibles and tangibles

Inequality and σ-Convergence in Spain’s regions

a) IA


b) IABGDP

c) IAGDP d) TA

Taxonomy by regions according to their investment activityInvestment /extended GDP deviation (1995) and variation rate (mean 1995-2013) in relation to the national average. Spain’s autonomous communities (percentage)

Investment /extended GDP deviation (1995) and variation rate (mean 1995-2013) in relation to the national average. Spain’s autonomous communities (percentage)

a) IA

b) IABGDP

Taxonomy by regions according to their investment activity


c) IAGDP d) TA


Investment /extended GDP deviation (1995) and variation rate (mean 1995-2013) in relation to the national average. Spain’s autonomous communities (percentage)


Classification of Spain’s autonomous communities according to their position in relation to national average

Source: Cotec Foundation-Ivie, BBVA Foundation-Ivie, INE and own elaboration.

Intangible assets:

Only Madrid displays leadership

Initial leadership by Catalonia and Navarre stagnates

Converging autonomous communities:

Andalusia, Valencian Community, Murcia and Ceuta and Melilla

Diverging autonomous communities:

Aragón, Asturias, Castile and Leon, Extremadura, Basque Country and La Rioja

Tangible assets:

More balanced distribution among regions in the 4 categories

No clear leadership

IA IABGDP IAGDP TA

Andalusia converging converging converging diverging

Aragón diverging diverging diverging reinforced leader

Asturias diverging diverging diverging converging

Balearic Islands converging diverging converging reinforced leader

Canary Islands diverging diverging losing momentum losing momentum

Cantabria diverging losing momentum diverging losing momentum

Catalonia losing momentum losing momentum losing momentum losing momentum

Castile-La Mancha converging diverging converging converging

Castile and Leon diverging diverging diverging diverging

Valencian Community converging converging converging losing momentum

Extremadura diverging diverging diverging losing momentum

Galicia converging converging diverging losing momentum

C. of Madrid reinforced leader reinforced leader reinforced leader converging

R. of Murcia converging converging converging reinforced leader

Navarre losing momentum losing momentum losing momentum losing momentum

Basque Country diverging diverging diverging diverging

La Rioja diverging diverging diverging losing momentum

Ceuta and Melilla converging converging converging diverging


Tangible and intangible investment by sectors: TAGDP, IAGDP and IABGDP. Average 1995-2014 (percentage)


Sectoral differences in intangible assets:

Highly intensive sectors: Financial and insurance activities, Transport equipment, Machinery and equipment n.e.c. and Electrical and optical equipment.

Less intensive sectors: Agriculture, forestry and fisheries, Transportation and Public administration and defence.

Very different weights of investment in each of the 5 IABGDP components by sectors.

Intangible assets by sectors

Sector classification according to their position in relation to the total

Source: Cotec Foundation-Ivie, BBVA Foundation-Ivie, INE and own elaboration.

Sectors IA IABGDP IAGDP TA

01. Agriculture, forestry and fisheries diverging diverging converging reinforced leader

02. Mining and quarrying converging converging diverging reinforced leader

03. Food products, beverages and tobacco losing momentum losing momentum converging converging

04. Textiles, wearing apparel, leather and related products losing momentum losing momentum converging diverging

05. Wood and paper products; printing and reproduction of recorded media losing momentum losing momentum diverging diverging

06. Coke and refined petroleum products; chemicals and chemical products losing momentum losing momentum reinforced leader converging

07. Rubber and plastics products, and other non-metallic mineral products diverging losing momentum converging diverging

08. Basic metals and fabricated metal products, except machinery and equipment diverging losing momentum converging diverging

09. Electrical and optical equipment losing momentum losing momentum losing momentum diverging

10. Machinery and equipment n.e.c. losing momentum reinforced leader losing momentum diverging

11. Transport equipment losing momentum losing momentum losing momentum diverging

12. Other manufacturing; repair and installation of machinery and equipment losing momentum losing momentum diverging diverging

13. Electricity, gas and water supply converging converging converging reinforced leader

14. Construction diverging reinforced leader diverging diverging

15. Wholesale and retail trade; repair of motor vehicles and motorcycles reinforced leader reinforced leader converging converging

16. Transportation and storage converging diverging converging reinforced leader

17. Accommodation and food service activities converging converging diverging losing momentum

18. Information and communication reinforced leader converging reinforced leader reinforced leader

19. Financial and insurance activities losing momentum losing momentum losing momentum diverging

20. Real estate activities diverging losing momentum converging converging

21. Professional, scientific, technical, administrative and support service activities reinforced leader reinforced leader losing momentum converging

22. Public administration and defence; compulsory social security diverging diverging diverging losing momentum

23. Market education reinforced leader converging reinforced leader diverging

24. Non-market education losing momentum diverging losing momentum reinforced leader

25. Market health and social activities reinforced leader reinforced leader converging converging

26. Non-market health and social activities diverging converging diverging losing momentum

27. Arts, entertainment and recreation; other services diverging converging losing momentum losing momentum

Intangible assets by sectors

• Financial and insurance activities (most IA intensive ): losing momentum. Leading sector in investment to improve firm organisation and advertising; third in training workers

• Electrical and optical equipment (ICT producer): losing momentum. Bias towards IABGDP; third in investment to improve firm organisation

• Professional services (ICT-intensive user): Also IA-intensive user (complementarity ICT/IA). Leadership. Significant weight of investment in design, training workers and firm organisation.

• Transport equipment (significant regarding exports): IA intensive. Losing momentum. Bias towards IABGDP, in design, advertising and training workers.

• Construction (traditional and relatively most important weight in Spain): Low weight of investment in ICT and IA. Greater weight in IABGDP than IAGDP due to its investment in design.

• Accommodation (traditional and relatively most important weight in Spain): Low weight of investment in ICT and IA. Divergent in IA and IAGDP and convergent in IABGDP.

The most dynamic sectors invest more in ICT and intangibles (especially to improve firms’ organisational structure).

Intangible assets. Some outstanding sectors

Final comments

IA (IAGDP and IABGDP) is a reflection of the productive structure of the Spanish economy and it is also its driver of transformation.

A policy, either private or public, that aims to adapt the structure to competition needs quantitative information to establish and follow up some goals.

The Cotec Foundation-Ivie database provides experts, institutions, the government and firms with an immediate tool to diagnose and design strategies to change, innovate and improve society’s living standards.

The wealth of information at regional and sectoral level that it contains is internationally unique. This enables the detailed analysis of key issues regarding growth strategies of regions and industries in Spain.

As said by the British Mathematician Lord Kelvin “what is not defined, cannot be measured” and, along that line, according to P. Drucker “if you can’t measure it, you can’t improve it”.

Certainly, the information provided will help narrow the gap that still separates Spain from other developed countries regarding investment in assets that play a crucial role in the long-term growth of economies.

WWW.COTEC.ES@Cotec_Innova

@Ivie_news WWW.IVIE.ES

Economy & Finance

The intangible economy in Spain