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

Abstract

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.

Acknowledgements

An earlier version of this paper was presented at the Annual Conference of the Regional Studies Association (RSA) that took place during 27–29 May 2008 in Prague, Czech Republic. The authors thank the participants of the Conference and the two anonymous referees for their comments on the previous versions of this paper. The usual disclaimers apply.

Notes

1 A valuable literature on intangibles that is perhaps somewhat more widely drawn is offered by the collections of Bianchi and Labory (2004), and Hand and Baruch (2003).

2 The authors are grateful to Professor Jonathan Haskel for providing these data.

3 The employment classes derive from the UK Standard Industrial Classification based on the 1992 major revision. The regional employment data come from the Office for National Statistics (ONS) Annual Employment Survey Employee Analysis for the years 1991 to 1997 and the ONS Annual Business Inquiry Employee Analysis for the years 1998–2004.

4 It is interesting to note that regional gains in terms of GVA per head are not necessarily associated with Total Factor Productivity gains. This is because intangibles are not only an output, but also an input in the production process (Melachroinos & Spence, 2012).