The Territorial Impact of the Knowledge Economy: Intangibles and Regional Inequality in Great Britain

Knowledge-based activities are an important source of national and regional competitiveness. In the UK and other European Union countries knowledge industries represent not only one of the fastest growing sources of new jobs, but also account for an increasing share of Gross Value Added (GVA) and exports. Nonetheless, there are also indications that the actual importance of the knowledge economy still remains understated. Within the conventional System of National Accounts, expenditure on intangible assets, such as research and development or human and organizational capital, is not considered either as part of GVA or as investment. In the UK, Marrano et al. (2009) report increased market sector GVA figures by as much as 13% in 2004 after treating intangibles as investment. Considering that expenditures on intangibles vary considerably across regions, it is likely that the territorial impact of this aspect of the knowledge economy has remained largely unreported so far. Spatial inequalities in the investment in intangibles should result in sharper inequalities in regional output. This paper aims to address this issue, first by adjusting the UK regional GVA series for investment in intangibles and second by exploring the trends in regional economic convergence during the period 1991-2004.