Intangible Capital, Markups, and Productivity Growth

In this paper, we explore whether and to what extent the interplay between intangible capital and markups contributed to labour productivity growth paths across a sample of European economies and the US over the years 1995-2020. Both the US and the EU have experienced a prolonged productivity slowdown, but the US productivity growth remains more sustained, despite rising market power concerns. Using new EUKLEMS&INTANProd country-sector data, we show that the EU economies are characterized by slightly declining markups, whereas the opposite is true for the US. Similar diverging trends can be observed for productivity, especially if we consider the intangible-intensive sectors. We also find a positive correlation between intangibles and markups and show that the contribution of intangible capital accumulation to labour productivity growth is larger where markups are higher (in the US). Our findings suggest that the synergies between intangible capital accumulation and market power are critical elements to better understand productivity growth differentials and the factors determining the productivity slowdown.