Intangible investments—such as software, research and development, branding, and organizational capital—change how a firm’s capital productivity is measured because standard statistics and accounting treat them differently from physical assets. Carol Corrado of The Conference Board, Charles Hulten of the University of Maryland, and Daniel Sichel of Wellesley College have argued that including intangibles in capital measures alters estimates of capital services and productivity growth, reducing the apparent role of total factor productivity and reallocating output to capital inputs. This matters because measurement choices affect conclusions about where growth comes from and which investments firms should prioritize.
Measurement challenges
Accounting rules and national accounts historically expense many intangible expenditures, so measured capital stocks undercount economic resources. This creates a measurement bias where capital productivity appears higher for firms with more tangible assets and lower for firms investing heavily in intangibles. Erik Brynjolfsson of the Massachusetts Institute of Technology has shown in research that digital and organizational assets interact with IT to raise measured output only when measurement frameworks recognize those complementarities. In practice, the timing and classification of intangible capitalization—whether R&D is expensed or capitalized, how brand value is amortized—shift estimated returns on capital and reported productivity.
Firm-level and policy implications
When intangibles are capitalized, firm-level capital productivityCultural and territorial factors play a role: innovation hubs that emphasize human capital and collaborative culture, such as Silicon Valley, will exhibit different intangible capitalization patterns than manufacturing regions where physical capital dominates.
Intangible investments also carry environmental and social nuances. Software and process innovations can improve energy efficiency, while branding and human capital investments shape consumer behavior and workplace practices. Recognizing intangibles in capital productivity metrics therefore aligns economic measurement with the realities of modern firms, informing better corporate strategy and public policy aimed at sustainable, innovation-driven growth.