Understanding Weak Capital Investment: the Role of Market Concentration and Intangibles

Nicolas Crouzet and Janice Eberly

No 25869, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E22 (search for similar items in EconPapers)
Date: 2019-05
New Economics Papers: this item is included in nep-ind, nep-ino, nep-ipr, nep-knm, nep-mac and nep-opm
Note: AP EFG ME
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (85)

Downloads: (external link)
http://www.nber.org/papers/w25869.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:25869

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w25869

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().