This paper uses a new cross-country cross-industry dataset on investment in tangible and intangible assets for 18 European countries and the US.  We set out a framework for measuring intangible investment and capital stocks and their effect on output, inputs and total factor productivity. The analysis provides evidence on the diffusion of intangible investment across Europe and the US over the years 2000-2013 and offers growth accounting evidence before and after the Great Recession in 2008-2009. Our major findings are the following. First, tangible investment fell massively during the Great Recession and has hardly recovered, whereas intangible investment has been relatively resilient and recovered fast in the US but lagged behind in the EU. Second, the sources of growth analysis including only national account intangibles (software, R&D, mineral exploration and artistic originals), suggest that capital deepening is the main driver of growth, with tangibles and intangibles accounting for 80% and 20% in the EU while both account for 50% in the US, over 2000-2013. Extending the asset boundary to the intangible assets not included in the national accounts (Corrado, Hulten and Sichel (2005)) makes capital deepening increase. The contribution of tangibles is reduced both in the EU and the US (60% and 40% respectively) while intangibles account for a larger share (40% in EU and 60% in the US). Then, our analysis shows that since the Great Recession, the slowdown in labour productivity growth has been driven by a decline in TFP growth with relatively a minor role for tangible and intangible capital. Finally, we document a significant correlation between stricter employment protection rules and less government investment in R&D, and a lower ratio of intangible to tangible investment.

Total factor productivity (TFP) is essential for disentangling the determinants of economic growth, productivity, and the standard of living. Understanding the variations in TFP, however, is greatly challenging because of the many assumptions that comprise the theoretical growth framework. In this paper, we aim to explore the determinants of TFP growth for countries at different stages of information and communication technology (ICT) development. To address the endogenous nature of the associated growth variables, we implement a three-stage-least (3SLS) square panel regression to improve the efficiency and asymptomatic accuracy of the estimators. We find that transmission channels, such as financial openness and trade globalization, have contributed substantially to growth in both advanced and developing countries. However, we also discover that greater financial openness can undermine a country’s TFP growth if the financial system is not sufficiently developed. When time horizons are decomposed into pre-ICT development and post-ICT development periods, a significant crowding-out effect is observed between ICT investment and financial openness in the pre-period, implying that the allocation of resources is critical for countries in the developing stage. Trade and finance policies that are adopted by advanced and developed countries might not be ideal for underdeveloped countries. Discretion in choosing adequate policies regarding financial integration and trade liberalization is advised for these emerging countries.