Intangible capital and firms' productivity

The competitive strategies and performances of firms in the industrialized countries are increasingly based on assets like the inventions of new processes and products, the improvements in employee skills and product image. These factors, labeled as "intangible capital," represent a key component of the knowledge of firms which are crucial to their performance. The aim of this article is to evaluate the role of internal intangible capital on firms' productivity. As firms' behavior is crucially affected by the external economic and institutional environment, we control for the characteristics of the regional location in terms of technological and human endowments, as well as for the regional infrastructures and settlement structure. In our empirical application, we analyze a large panel of European companies in the manufacturing and service sectors belonging to 116 regions of six countries, considered over the period 2002-2006. The results, obtained by applying the Levinsohn-Petrin estimation approach, show the positive influence on firms' productivity exerted by internal knowledge capital and by intangible assets available in the regional economy. The findings highlight the importance of policies which are designed to (i) stimulate the accumulation of intangible capital stocks internal to the firms, and (ii) support the development of an adequate knowledge system at the regional level.