Measuring Capital in the New Economy
edited by Carol Corrado, John Haltiwanger and Daniel Sichel
University of Chicago Press, 2005
Cloth: 978-0-226-11612-9 | Electronic: 978-0-226-11617-4
DOI: 10.7208/chicago/9780226116174.001.0001


As the accelerated technological advances of the past two decades continue to reshape the United States' economy, intangible assets and high-technology investments are taking larger roles. These developments have raised a number of concerns, such as: how do we measure intangible assets? Are we accurately appraising newer, high-technology capital? The answers to these questions have broad implications for the assessment of the economy's growth over the long term, for the pace of technological advancement in the economy, and for estimates of the nation's wealth.

In Measuring Capital in the New Economy, Carol Corrado, John Haltiwanger, Daniel Sichel, and a host of distinguished collaborators offer new approaches for measuring capital in an economy that is increasingly dominated by high-technology capital and intangible assets. As the contributors show, high-tech capital and intangible assets affect the economy in ways that are notoriously difficult to appraise. In this detailed and thorough analysis of the problem and its solutions, the contributors study the nature of these relationships and provide guidance as to what factors should be included in calculations of different types of capital for economists, policymakers, and the financial and accounting communities alike.


Carol Corrado is the chief of the Industrial Output Section in the Division of Research and Statistics at the Federal Reserve Board. John Haltiwanger is professor of economics at the University of Maryland and a research associate of the National Bureau of Economic Research. Daniel Sichel is an assistant director in the Division of Research and Statistics at the Federal Reserve Board.



- Carol Corrado, John Haltiwanger, Daniel Sichel
DOI: 10.7208/chicago/9780226116174.003.0001
[capital, new economy, conference, Washington D.C, capital accumulation, intangible assets, high technology capital, information technology]
This introductory chapter explains the contents of this volume which is about the measurement of capital in the new economy. The chapters in this volume are revised or edited versions of papers presented at the Conference on Research in Income and Wealth entitled “Measuring Capital in the New Economy” held at the Federal Reserve Board in Washington D.C. on April 26–27, 2002. The topics discussed include the challenges of how to measure physical capital accumulation and the contribution of intangible assets in an economy that is increasingly dominated by high technology capital and undergoing change brought about by advances in information technology. (pages 1 - 10)
This chapter is available at:
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- Carol Corrado, Charles Hulten, Daniel Sichel
DOI: 10.7208/chicago/9780226116174.003.0002
[business spending, capital investment, U.S, NIPAs, intangible capital, economic growth]
This chapter provides guidance on what components of business spending should be included in measures of capital investment. It presents a model that defines capital investment as any outlay that is intended to increase future rather than current consumption should be treated as investment. This chapter explains that a significant portion of investment in traditional equipment and structures is excluded from the existing investment figures in U.S. national income and product accounts (NIPAs) and suggests that a move to recognize intangible capital might alter our understanding of the factors determining economic growth. (pages 11 - 46)
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- Jason G. Cummins
DOI: 10.7208/chicago/9780226116174.003.0003
[market valuation approach, intangible capital, adjustment-cost framework, earnings forecast, estimate of return]
This chapter discusses conceptual and measurement issues about the market valuation approach to measuring intangible capital that has appeared in the recent literature. It explains how intangible capital is measured in the market valuation approach and proposes to consider intangibles within an adjustment-cost framework. The application of the proposed method in earnings forecasts reveals that this approach finds a substantial, but much smaller, valuation of intangible capital. It also provides a different perspective about what intangibles are and how researchers can estimate their return. (pages 47 - 72)
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- Baruch Lev, Suresh Radhakrishnan
DOI: 10.7208/chicago/9780226116174.003.0004
[organization capital, publicly traded capital, factor productivity, investment valuation model, market values, expected abnormal earnings]
This chapter describes a firm-specific measure of organization capital and applies it to produce estimate for a large sample of publicly traded companies. It explains that this measure involves the measure organizational capital as a residual, much like total factor productivity. This chapter also evaluates the validity of this measure within a widely used investment valuation model and shows that it can contribute significantly to the explanation of differences in market values of firms, beyond the traditional value indicators of assets in place and expected abnormal earnings. (pages 73 - 110)
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- Lars Peter Hansen, John C. Heaton, Nan Li
DOI: 10.7208/chicago/9780226116174.003.0005
[intangible risk, investments, measured capital, intangible capital, present-value approximation, asset pricing, discounted impulse response, vector autoregressive, dividend-risk measures]
This chapter discusses measure of intangible risk. It provides evidence that important differences exist between the risks associated with investments in traditional measured capital and those associated with intangible capital. This chapter also reproduces the present-value approximation used in the asset pricing literature and applies it to define a long-run measure of risk as a discounted impulse response. It evaluates the application of the vector autoregressive (VAR) characterizations to estimate the dividend-risk measures. (pages 111 - 149)
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- John M. Abowd, John Haltiwanger, Ron Jarmin, Julia Lane, Paul Lengermann, Kristin McCue, Kevin McKinney, Kristin Sandusky
DOI: 10.7208/chicago/9780226116174.003.0006
[human capital, productivity, market value, microdata, intangible capital]
This chapter explores new micro-based measures of human capital and the connections among human capital, productivity and market value. The analysis of measures of human capital and productivity reveals strong positive links in the microdata that differ according to the component of human capital used. The most-skilled workers have a disproportionate positive impact on productivity and the least-skilled workers have a disproportionate negative impact on productivity. The findings also suggest that human capital is closely connected to intangible capital. (pages 153 - 204)
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- Sandra E. Black, Lisa M. Lynch
DOI: 10.7208/chicago/9780226116174.003.0007
[organizational capital, human capital, advanced technologies, human resource practices, workforce training, employee voice, work design]
This chapter examines the measure of organizational capital in relation to human capital. It discusses recent related findings that the returns from the adoption of advanced technologies are improved by the adoption of state-of-the-art human resource practices. This chapter explains the three broad components of organizational capital which include workforce training, employee voice and work design, and explains the important links and synergies between each of these categories that contribute to the overall value of organizational capital within a firm. (pages 205 - 234)
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- Frank R. Lichtenberg
DOI: 10.7208/chicago/9780226116174.003.0008
[pharmaceutical R&D, longevity increase, FDA, new molecular entities, age distribution, knowledge-capital accumulation, econometric model, priority-review drugs, longevity]
This chapter evaluates the contribution of pharmaceutical research and development (R&D) to longevity increase by analyzing the relationship between Food and Drug Administration (FDA) approvals of new molecular entities and changes in the age distribution of deaths from all diseases, using longitudinal disease-level data. It explains the measurement of pharmaceutical knowledge-capital accumulation and proposes an econometric model of the effect of pharmaceutical knowledge-capital accumulation on the age distribution of deaths. The findings reveal that the estimates indicated that approval of standard-review drugs has no effect on longevity, but that approval of priority-review drugs has a significant positive impact on longevity. (pages 237 - 269)
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- Barbara M. Fraumeni, Sumiye Okubo
DOI: 10.7208/chicago/9780226116174.003.0009
[research and development, GDP, NIPAs, U.S, capital stock, intangible capital]
This chapter examines the impact of research and development on gross national product (GDP) and on national income and product accounts (NIPAs). It discusses how an R&D capital stock could be constructed for the U.S. NIPAs and analyzes the relationship between their measures and existing GDP. This chapter expresses hope that this study will spur consideration of how measuring intangible capital may change the existing statistics. (pages 275 - 322)
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- Mark Doms
DOI: 10.7208/chicago/9780226116174.003.0010
[communications equipment, price change, quality change, technological change, real investment, business computer networks]
This chapter examines price and quality change for communications equipment using a newly developed data. The findings reveal that a high pace of quality change in communications equipment, particularly for the components used to create and provide business computer networks. The results are also roughly consistent with several independent sources of information on technological change and price declines. The implications for the results in this chapter are that real investment in certain categories was much higher than actually reported. (pages 323 - 362)
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- Bruce T. Grimm, Brent R. Moulton, David B. Wasshausen
DOI: 10.7208/chicago/9780226116174.003.0011
[high-tech assets, national accounts, software, Bureau of Economic Analysis, information processing equipment, gross domestic product, current-dollar estimates, constant-dollar estimates]
This chapter focuses on the measurement of high-tech assets in the national accounts, including the current treatment of software. It outlines areas in which the Bureau of Economic Analysis (BEA) hopes to make future progress and discuss recent changes in the methods the BEA uses to measure information processing equipment. This chapter also discusses the relationship between private fixed investment in information processing equipment and software and gross domestic product and explains how the current- and constant-dollar estimates are prepared. (pages 363 - 402)
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- Dale W. Jorgenson, Mun S. Ho, Kevin J. Stiroh
DOI: 10.7208/chicago/9780226116174.003.0012
[productivity growth, human capital investment, information technology investment, higher education, industry level]
This chapter explores the connections among productivity growth, human capital investment, and information technology investment at the industry level. The findings confirm the important contributions of both information technology and investment in human capital, via higher education, to productivity growth. This chapter concludes that restructuring official statistics to describe the ongoing structural changes more accurately is an important step in the management of the new risks that we face collectively. (pages 403 - 472)
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- W. Erwin Diewert
DOI: 10.7208/chicago/9780226116174.003.0013
[measurement of capital, capital stocks, price changes, depreciation, quality change, intangible assets]
This chapter provides a unified framework for the measurement of capital that addresses many of the issues and topics covered in the volume. It discusses some of the problems involved in constructing price and quantity series for both capital stocks and the associated flows of services when there are general and asset-specific price changes in the economy. This chapter also reviews the standard methods for measuring capital, examines a range of alternatives for the treatment of depreciation, and explores the role of quality change and how intangible assets stocks could be measured. (pages 479 - 556)
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- Robert E. Hall
DOI: 10.7208/chicago/9780226116174.003.0014
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Author Index

Subject Index