The impact of investment in intangible assets on
productivity spillovers
A proposal to the Department for Business Innovation and Skills
Prepared by
July 2011
About London Economics
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Contents
1 Background and Context
1.1
Aims and objectives of the analysis
2 Methodological Approach
2.1
2.2
2.3
Systematic literature review
Final synthesis and presentation of deliverables from review
Deliverables
3 Project Management
3.1
3.2
3.3
3.4
3.5
3.6
3.7
3.8
Project Director
Project Manager
Project Initiation
Progress Updates
Liaison and communication
Confidentiality arrangements
Internal Quality Assurance
External Quality Assurance and research support
4 London Economics’ expertise
4.1
Expertise
5 Core Staffing
6 Quality Assurance
6.1
6.2
Internal Quality Assurance
External Quality Assurance
7 Risk Management
8 Timelines and Costs
8.1
8.2
Costs
Timelines
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The impact of investment in intangible assets on productivity spillovers
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Tables, Figures & boxes
Table 1:
Abbreviated classification and methods of intangibles in the UK – Marrano and Haskel
(2006)
Page
2
Table 2:
Proposed costs of the analysis
Figure 1:
Approach to undertaking literature review
Figure 2:
London Economics’ Team Structure
11
Figure 3:
Timeline for analysis
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ii
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The impact of investment in intangible assets on productivity spillovers
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7
1 │ Background and Context
1
Background and Context
The proposed analysis will focus on how and to what
extent, investment in intangible assets leads to
productivity spillovers. We can identify five different but
correlated steps in the analysis necessary to understand
how to identify and measure investment in intangibles;
to what extent and thorough which channels and
mechanisms intangibles have a direct impact on
productivity and subsequently lead to productivity
spillovers; and what the data availability is and
requirements for future analysis. Although elements 1 to
3 are not the primary focus of this analysis, they are
nonetheless important and need to be addressed
consistently as part of the analysis.
Definition of intangibles
Measurement of
intangibles
Direct impact of
intangibles on
productivity
Impact of intangibles on
productivity spillovers
Data requirements and
availability (for future
analysis)
What are intangibles assets, how are they
measured and where is the data?
Taking an example of recent work in the area, Corrado et
al. (2005, 2006)1 group intangible capital into three broad
categories and assess data availability using information
published in the National Accounts and other sources to
create an estimate of intangible investment at national
level.
1.
Computerised information
Knowledge embedded in computer programs and
computerised databases. Investment in these items can
be proxied by expenses on software developed for a
firm’s own use, purchased, and custom software.
2.
Scientific and creative property
This includes both the standard “scientific R&D
component”, which covers the scientific knowledge
embedded in patents, licenses, and general know-how
(not patented), but also the “non-scientific R&D”
component, which reflects the innovative and artistic
content of commercial copyrights, licenses, and designs.
Spending on these assets covers R&D expenditure on
developing new, or enhancing existing, product and
processes and also mineral exploration. The “nonscientific R&D” component is more difficult to identify
and covers all non-scientific commercial R&D
expenditure, as well as the costs of developing new
motion picture films and other forms of entertainment,
and also new product development by financial services
and insurance firms.
3.
Economic competencies
This item represents the value of brand names and other
knowledge embedded in firm-specific human and
structural resources and can be broadly divided into
brand names, firm-specific human capital, and
organisational structure. Spending on these assets is
proxied by the costs of advertising and market research;
the direct (training fees, tuition reimbursements, etc.)
and indirect costs (employee time) of workforce training
and education; and the costs of organizational change
and development divided into own-account (i.e. the time
spent on developing business models and corporate
cultures) and purchased components (management
consultant fees).
What are the components of intangible capital and
data sources in the UK?
A similar exercise, using the same definitions, but
assessing data sources availability in the UK is carried out
by Marrano and Haskel (2006). They identify and use the
following data sources for the different intangible assets:
1
Corrado C., Hulten, C. and Sichel, D. (2005) ‘Measuring Capital and
Technology: An Expanded Framework,’ and Corrado C., Hulten, C. and
Sichel, D. (2006), “Intangible Capital and Economic Growth”
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The impact of investment in intangible assets on productivity spillovers
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1 │ Background and Context
Table 1: Abbreviated classification and methods of intangibles in the UK – Marrano and Haskel (2006)
Item
Computerized Information
Method and data sources
Computer software
Estimate developed by the ONS using three different surveys: the Business Spending on Capital Items
Survey, the Quarterly Inquiry into Capital Expenditure and the Annual Business Inquiry. Expenditure is
measured using spending on software purchases and own-account spending.
Computerized databases
Spending on database activities and data processing is mainly covered in expenditure on software
Innovative property
Scientific R&D
R&D expenditure data in the UK is collected by the Business Enterprise R&D survey (BERD). Spending in
the “computer and related activities” industry was subtracted from the overall R&D spending
Mineral exploration
Spending associated to perspectives of future returns is measured using national accounts data
Copyright and license costs
UK National Accounts relatively to TV and radio, publishing and music industries
Other product development (PD)
New PD in the financial industry
Measured as a proportion of total intermediate spending by the financial services industry
New architectural/eng. designs
Use data for the relevant sector (SIC742) and consider 50% of total turnover for the sector
R&D in social science and humanities
Estimated as twice the turnover of R&D in the SIC732 “Social Sciences and Humanities”
Economic competencies
Brand equity
Advertising expenditure
Data from 3 different sources: two are derived from the ABI third from the Advertising Association.
Market research
Use turnover of firms in the “market research” industry (SIC74.13) and double it to include own-account
spending
Firm-specific human capital
Direct and indirect measures of on-the-job and off-the-job training costs are mainly based on data from
the NESS (2005), and also use the Learning and Training at Work Survey (2000) and the Community
Vocational Training Survey. Off-the-job training are estimated using data on the number of employees
attending external courses, the direct cost the courses and the opportunity cost of employee’s time
Organisational structure
Purchased
Estimate is based on data from the annual survey of firms in the UK consulting industry by the UK
Management Consulting Association and cross checked with data from the ABI
Based on data from the Annual Survey of Hours and Earnings. The estimate is derived from the wage bill
of senior managers
Source: LE adaptation of Marrano and Haskel (2006)
Own account
Some of the potential data sources were included in Table 1. Below we review the main data sources at micro level on
intangible spending in the UK not explicitly mentioned in Table 1. The wider analysis will provide a thorough review of
existing data sources and explore to what extent they are linkable to each other to guide the Department in future work.
The main survey covering various aspects of innovation activities and spending on intangibles is the Community Innovation
Survey (latest versions 2009 and 2007) that asks about various forms of intangible spending but does not distinguish
between in-house and purchased spending on intangibles, does not cover all intangible items and does not inquire about
expected life length. The ONS recently carried out a survey of UK firms focusing on intangible assets i. The survey,
denominated Investment in Intangible Asset (IIA), was launched in October 2009 and covered R&D spending, as well as
spending on training activities, software, branding, and design and business processes. The survey also specifically asked
firms to divide spending on intangibles in externally purchased and in-house spending. The other innovative element of the
survey is the set of questions on the length of time firms expect to benefit from spending on such items, making it possible
to derive depreciation rates for investment in intangibles.
The role of intangible capital in economic growth
A series of papers, starting from the definition set out by Corrado et al. (2005) looked at the measurement of intangible
investments and the effect of intangible capital on economic growth at aggregate level (national, sectoral, regional) using
the growth accounting framework. The relevant papers in the area include the already mentioned Corrado et al. (2005,
2006) for the US; Marrano and Haskel (2006)ii and Marrano, et al. (2007)iii, Haskel et al. (2011)iv and Haskel and Pesole
(2011)v for the UKvi; Fukao et al. (2008)vii for Japan; van Rooijen-Horsten et al. (2008) for the Netherlandsviii; the studies for
2
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The impact of investment in intangible assets on productivity spillovers
1 │ Background and Context
the Australian Productivity Commission by Barnes and McClure (2009) and Barnes (2010) ix; and the investigation on
intangible investment and productivity growth across the 27 EU member countries by Jona-Lasinio et al. (2011)x.
Impact on productivity and nature and extent of spillovers
Spillovers resulting from the investment in intangible assets occur at several levels. At employee level, human capital
externalitiesxi or spillovers occur when the productivity of a worker is a function of co-worker productivity (Mas and Moretti
(2006)xii, Moretti (2004)xiii). Although spillovers are generally positive at employee and employer level (and sometimes
significant (Lucas (1988)xiv), productivity spillovers may be costly for private firms to implement and can remain
unexploited.
Autant-Bernard et al. (2010)xv use a sample of French firms to investigate the effect of intangible assets, and in particular
agglomeration forces and knowledge externalities on plant-level productivity. Their main findings suggest that intra-firm
spillovers across multiple locations have stronger influence than inter-firm spillovers and improving knowledge flows within
firms would generate more benefits than spillovers stemming from outside the firm. O’Mahony and Vecchi (2009) xvi use
data on companies operating in both the manufacturing and non-manufacturing sector in five countries (US, UK, Japan,
France and Germany) and perform two different stages of analysis: first they provide evidence on the impact of R&D capital
on productivity using firm level data, adding industry information on factor and skill intensity to assess the existence of
spillovers effects. They find evidence of positive spillovers (around 2-5% higher productivity growth) for companies
operating in sectors with high R&D/skills intensity. In high skill intensive sectors, spillovers mostly affect companies
investing in R&D, but also have a positive, albeit smaller, effect on companies which are not undertaking R&D activities.
Geppert and Neumann (2011)xvii use a micro dataset for Germany and focus on the impact of intangible capital (defined as
organisation, R&D and ICT capital) on firm performance and the potential spillovers at regional level. More specifically they
first quantify intangible capital at the level of individual establishments, they then explore the role of intangible capital for
the economic performance of establishments and regions, and finally assess the presence of spillovers at regional level,
exploring the link between the productivity of individual establishments and the amount of intangible capital in the rest of
the regional economy. Their findings suggest that investment in intangible capital generates positive externalities not only
at the regional level, but also at establishment level.
Marrocu et al. (2010)xviii use micro data on companies from six European countries operating in the manufacturing and non
manufacturing sectors. They aim to assess the effect on firm-level productivity of intangible capital internally accumulated
by firms and of regional intangible assets which can potentially enhance firm productivity through positive spillovers. Their
main results suggest that internal intangible capital has a positive effect on firm-level productivity and that the external
environment also plays a fundamental role.
Spillovers also depend on the source and nature of the funding involved. For instance, Haskel (2010 xix) finds that there is
neither evidence of spillover effects from intangible investment at market sector level (including R&D) nor spillovers from
public spending on civil or defence R&D. However, there is strong evidence of market sector spillovers from public R&D
spend on research councils. In addition to market spilloversxx, spillovers may also occur when knowledge created by one
firm is typically not contained within that firm, creating value for other firms and their customers. Knowledge spillovers are
particularly likely to result from basic research, but they are also produced by applied research and technology
development.
Measurement of spillovers
However, “knowledge flows...are invisible” (Krugman, 1993 xxi). As such, the measurement of spillovers is indirect with most
analyses measuring innovative effort or output of one agent, and looking for a correlation between this measure and the
innovative output of another agent. This involves measuring the "closeness" of different agents - either in terms of
technological similarity, geographic proximity, or economic relationships. Griliches (1993xxii) suggests that "R&D spillovers
are present and their magnitude may be quite large." Despite the econometric limitations, the evidence suggests that the
excess of the social over the private rate of return (the rate of spillover) is between 15 and 30%.
London Economics
The impact of investment in intangible assets on productivity spillovers
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2 │ Methodological Approach
These large and positive innovation and skills spillovers are one of the reasons why there is heavy government investment
in both further and higher education teaching and research, the availability of grant and tax relief, KTPs between business
and HEIs and the provision of advice from organisations such as the IPO and Business Link.
1.1
Aims and objectives of the analysis
The literature will review the theory on productivity spillovers from investment in intangible capital relevant to BIS, and
provide a short theoretical framework. Using the definition of intangible assets set out by Corrado et al., (2005, 2006)
various researchers have produced estimates of the impact of intangible capital on productivity at both macro (national,
sectoral and regional) and micro level in different countries. As part of the literature review we will provide in-depth details
of relevant studies, but also synoptic tables, containing summary information on the level of aggregation or disaggregation
(e.g. national, sectoral, regional, firm level), identifying the variables, sources and methodologies used, together with the
findings of the analysis.
The literature review will synthesise, interpret and critique existing quantitative and qualitative evidence on the presence,
nature, magnitude and economic importance of productivity spillovers associated with different BIS investments on
intangible capital at firm, sector and economy wide level. This will be disaggregated and presented by sector, region, supply
chain and other relevant dimensions where possible. We will attempt to addresses the following:






What are the mechanisms by which productivity spillovers arise?
Through which channels do productivity spillovers occur?
What are the socio-economic processes through which the spillovers are diffused (at firm/sector/ regional and
aggregate level)?
How and to what extent does this influence investment decisions and what holds them back from investing more?
Where do these channels lead?
How does the diffusion of productivity spillovers lead to endogenous economic growth?
As part of the review, the research will assess and evaluate the similarities and differences of methods used to
measure/quantify productivity spillovers and their limitations and develop recommendations for methods to identify
productivity spillovers and estimate their effects. This will draw on lessons learned from other areas and will include cost
effective recommendations for secondary analysis of existing data sets and new data collection.
We will ensure that the literature review adds value by reflecting on how investment in intangible capital has robust and
quantifiable impacts on productivity spillovers and recommends new secondary analysis and data collection, looking at
critical ways in which the evidence can inform evidence and analysis across BIS policy areas.
2
Methodological Approach
In the first phase of the analysis, the key element requires the proper framing of the analysis and in particular the
determination of the appropriate definition of productivity spillovers and intangible capital. The second related element of
this phase of the analysis involves the determination of the appropriate measures of intangibles, focusing on skills, research
and innovation. As discussed in the introduction, this is non-trivial, as although there have been a number of studies aimed
at achieving a better understanding of these issues, there continue to be varying definitions of productivity spillovers,
intangibles and their associated measurement, and this can lead to some degree of confusion in relation to exactly what
the literature is actually suggesting.
2.1
Systematic literature review
In this section, we present the methodological approach we propose for undertaking this systematic review of the
literature relating to productivity spillovers associated with investment in intangible capital. We have extensive experience
of undertaking this type of work and have augmented the processes by considering research best practice (and refer to the
recent best practice guidance which offers a checklist for undertaking a systematic review of literature (as per HMT
Magenta Book).
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The impact of investment in intangible assets on productivity spillovers
2 │ Methodological Approach
2.1.1 Conducting the review
There are a huge number of documents relating to the direct impact associated with the investment in intangible capital;
however, a much finer point relates to the indirect effect associated with investment in intangible capital, although a
substantial portion of the academic work focuses on the spilllover effects accruing to the individual (such as reduced
incidence of criminal activity or improved health effects). The consideration of the impact of spillovers on productivity
measures is finer still with much less consistent empirical literature available given the difficulties in measuring the
outcomes robustly and establishing a causal relationship. The key methodological challenge associated with this systematic
review of the literature relates to establishing the data sources to be trawled for research material, the initial search
criteria, and the inclusion and exclusion criterion to ensure that the most recent and relevant research work relating to
productivity spillovers associated with investment in intangible capital proceeds to the full in depth review from which
policy recommendations can be drawn.
2.1.2 Stage 1: Development of parameters and identification of potential sources
Objective: To ensure that the following steps of a search strategy been undertaken:

The searching of appropriate electronic/internet sources; print sources (e.g. journals, textbooks, research
reports); hand searching of appropriate print sources; and 'grey' (i.e. unpublished) literature
The Department is clear in the research questions regarding which it requires additional information. As such, we would
commence the project by defining a number of parameters for selection of research material that might be considered for
review. These initial broad parameters might include geographical factors (i.e. empirical studies related to the United
Kingdom and the United States but extended to relevant articles internationally), temporal factors (i.e. only empirical
studies since 1990 are to be considered), the nature of the study (whether the study is theoretical, empirical, statistical,
qualitative or opinion based), or the nature/level of assessment (economy wide, regional, inter or intra firm level).
The second element of the initial trawl is to consider the types of data sources – both online and hardcopy – that might be
appropriate for further assessment. Given the types of research questions, we would anticipate that all academic journals
in the social sciences would be included in the initial trawl. We would also access all electronic databases that might not
show up through a simple internet search or online journal search.
We would then establish and document a detailed multiple search criteria and rigorously apply and document these search
terms to ensure that these data sources are robustly exploited and the full range of articles are included in the initial
identification of potential sources. In addition to online journals and reference material, LE would undertake an extensive
assessment of the research material that might have been commissioned and published by government departments (BIS)
and other non departmental public bodies and representative organisations/associations (such as UKCES, UKTI), different
jurisdictions internationally and pan European organisations (OECD, EC DG Education, Arts and Culture, EC DG Research, EC
DG Employment etc). This would complement the academic research but would still only offer part of the entire collection
of material for further analysis.
We would then undertake a hand search of appropriate sources as well a search of unpublished or ‘grey’ sources that might
be available. This final stage of work relates to assessing the academic work that is either in progress or presented as part
of university or research discussion paper series or work in progress that may have been presented at a recent conference.
To ensure the robustness of the approach, we have included Dr Steve McIntosh (University of Sheffield) who is an
education economic expert and has unparallelled knowledge of this academic field.
2.1.3 Stage 2: Development and application of exclusion criteria and initial filter of articles
Objective: To ensure that the existing literature has been sifted for quality and validity using the criteria below
(amongst others)
When the initial trawl for literature (Stage 1) is completed, the project team screens the documents to assess:

The appropriateness of the questions, populations and outcomes addressed; evidence of selection bias,
performance bias, attrition bias and detection bias in the primary studies
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The impact of investment in intangible assets on productivity spillovers
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2 │ Methodological Approach
This stage of the analysis will establish the multiple exclusion and inclusion criteria that will be used to identify which
elements of the literature are analysed in detail and included in the final research report. This stage focuses on establishing
the quality of the studies and ensuring that low quality studies are excluded or appropriately caveated.
2.1.4 Stage 3: Application of review specific exclusion criteria and second filter of articles resulting
in full review of articles
Objective: To ensure that the literature is entirely relevant to the topic under discussion
Having applied the initial exclusion criteria in Stage 1 and 2, the next step will be to undertake a further review to identify
the documents to be included in the final report. Immediately after the trawl for literature (Stage 2) is completed, we will
screen each and every one of the initial documents selected to assess whether these pieces of research work are pertinent
to the study and provide a potential range of research on specific topics.
The articles would explicitly cover the range of topics contained in the Invitation to tender including:

Theoretical foundations on productivity spillovers

The definition and measurement of productivity spillovers

Main Qualitative and quantitative evidence on the following:

The presence, nature, magnitude and economic importance of productivity spillovers

The beneficiaries of productivity spillovers

The level of productivity spillovers (firm (inter and intra), supply-chain, sector, region, and economy, source
(universal education, training investment by both employers and individuals (including FE, HE and private
training provision)

Spillover effects of an increase in the compulsory leaving age; and continuous training in the UK and other
countries, and

assess whether there is information on worker nobility and the birth/death of firms

Main evidence on the following

Mechanisms by which productivity spillovers arise

What are the socio-economic processes through which the spillovers are diffused?

To what extent do these influence investment decisions and what holds them back from investing more?
We will carry out a full review (rather than abstracts and titles as in the first stage) of each document to ensure that they
are of interest to the detailed research questions being proposed by the Department. This stage of applying exclusion
criterion is based on a full screening of documents. It is at this stage that we would anticipate a significant component of
the analysis to be undertaken and we have dedicated appropriate resources to the task.
The search for articles is not complete at this stage. We will assess the citations referred to in each of the articles that have
not been excluded for the review by this stage in order to ensure that all literature that discusses productivity spillovers has
been considered. The entire process will be applied to these references (where duplications are excluded) and a final list of
articles shall be brought forward for final full and in-depth review.
This approach to reviewing the literature will assist London Economics in identifying the key information, both in general,
but also at a disaggregated level. In particular, the analysis can be segmented (in agreement with BIS), so that if there are
different issues or outcomes associated with productivity spillovers (for instance in relation to the nature of the intangible
asset (higher education and research versus skills investment)), this potential variation in the literature can be drawn out to
ensure that we are not restricted to ‘one size fits all’ conclusions and recommendations but a more tailored analysis that
better meets the Department’s needs.
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London Economics
The impact of investment in intangible assets on productivity spillovers
2 │ Methodological Approach
2.1.5 Stage 4: Data extraction during full scale review of articles selected for inclusion
Objective: To ensure that a strategy has been planned for extracting data from the included studies that
considers the issues below:
Details of study outcomes and findings; Information about the characteristics of included studies; Verification of
study eligibility for the review, Details of study characteristics, study methods, study data and information
sources, study participants (i.e. populations and sub-groups) and reliability check
This final stage involves the in depth academic review of the remaining articles and documents that have not been excluded
at any of the previous stages.

Figure 1: Approach to undertaking literature review
IDENTIFICATION
IDENTIFICATION
OFOF
POTENTIAL
POTENTIAL
SOURCES
SOURCES
Total
Totalnumber
numberof
of
papers
papersfound
found
through
screening
through screening
Abstract
Abstract
and
title
and
titles
screened
screened
Papers
Papers
excluded
excluded
Potential number of
Potential number of
papers to be included
papers to be included
APPLICATION
OFAPPLICATION
INCLUSION/
EXCLUSION
OF
INCLUSION/
CRITERIA
EXCLUSION
CRITERIA
Full
Full
document
document
screened
screened
CHARACTERIS
CHARACTERISATION
ATION
Papers
not
Papers
not
obtainable
obtainable
Pape
Papers
Papers
excluded
excluded
rs
Papers
included
Papers
included
citations checked
citations checked
Papers
excluded
excluded
IN
DEPTH
IN-DEPTH
REVIEWS
REVIEWS
2.2
Final
number
ofof
Final
number
articles
included
forfor
articles
included
in depth review
in-depth
review
Final synthesis and presentation of deliverables from review
Objective: To ensure that the interpretation of the findings of the review addresses the identified questions
We would collate the information on each of the studies finally selected according to the key points described above and
synthesise the findings in the draft final and final report to provide a balanced view of the subject area at an aggregated
level. We would also present the individual research study templates with populated cells as per the discussion above (an
excellent example of this approach undertaken for the DfE is presented here). The Department has been explicit in the
need to understand the recent and relevant literature relating to the outcomes of productivity spillovers in intangible
assets. Therefore, this report will provide detailed information on the following points (presented below):



What is the strength of the evidence from the review?
How applicable are the results of the review to 'real life' policy and practice?
What does the review say about the costs and benefits of policy alternatives?
London Economics
The impact of investment in intangible assets on productivity spillovers
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3 │ Project Management







2.3
What trade-offs are suggested by the review between expected benefits and costs (including opportunity costs)?
What mediating factors emerge from the review that might affect the implications for policy and practice in
different contexts?
What recommendations can be made for methods to identify productivity spillovers and estimate their effects?
What primary data might be collected to assist in the identification of productivity spillovers?
What analysis of secondary data might be undertaken to robustly measure productivity spillovers?
What are the 'take home' messages for policy making and/or practice?
What are the 'take home' messages for future research in this area?
Deliverables
2.3.1 Reporting
London Economics have proposed a team of highly qualified consultants who have considerable experience of undertaking
forensic data analyses in the United Kingdom within the education arena and within the public policy arena more generally.
We will ensure that we maximise the usefulness of the data and that the final outputs are academically robust, thoughtful
and appropriate in the sense that the overall policy landscape in which the Department operates will be considered and
central to any recommendations made. Some element of the report will be cross cutting and applicable to all policy makers
in the field, while others will be policy specific. We will ensure that the literature review can be read either as a whole or
in modules so that policy makers in different areas can ‘select’ the cross cutting element plus the appropriate module of
information to maximise its effectiveness. The work undertaken for the Ministry of Justice recently is a good example of
this approach, and although used internally only, we would be happy to provide additional information.
We will provide the following outputs over the course of the project:
 A review protocol, to be agreed with the Department
 Fortnightly updates, in a format to be agreed with the project manager;
 A technical academic workshop (which will include wider BIS colleagues and other relevant stakeholders) to
discuss results;
 A draft report summarising the findings of the literature review (not including final recommendations);
 A final publishable report, including an executive summary and drafted in line with BIS research report style
instructions including findings from the literature and recommendations of methods for identifying productivity
spillovers and estimating their effects
The draft final and final reports will be shared with the Department in draft format and we have incorporated time in the
project timeline to allow for comments and suggestions from the Department to be incorporated where necessary. This will
ensure that the evidence collected and analysed is comprehensive and provides BIS with a quality assured product.
3
Project Management
In all the research work we undertake, we invest appropriate resources to ensure that the project runs smoothly from
inception to the presentation of final deliverables. We consider the project management role to be ever present
throughout the entire lifetime of the project (though secondary to the core research work) and allocate appropriate
resources to the task of ensuring the delivery of the project on time and on budget. Our project management philosophy is
to ensure that you are fully and transparently informed of progress at every stage of the project and to ensure there are ‘no
surprises’ for the Department for Business, Innovation and Skills at any stage of the project.
3.1
Project Director
For this project, we have appointed Dr Gavan Conlon as the dedicated project director. Gavan is a Partner at London
Economics and will have overall responsibility for the direction and delivery of the project. Gavan is an expert in the
economics of education and has directed, managed or delivered over 50 education related research projects during his
time as an academic consultant (involving literature reviews, data collection and analysis, forecasting and developing
evidence based recommendations). In the last 12 months, Gavan led several London Economics’ projects for BIS including
the estimation of training on firm level productivity and spillovers using the ABI/BSD. He has a doctorate in education
economics from the University of Oxford and has several publications in peer reviewed academic journals. He recently
provided expert evidence to the BIS Select Committee enquiry into higher education fees and funding.
8
London Economics
The impact of investment in intangible assets on productivity spillovers
3 │ Project Management
3.2
Project Manager
Pietro Patrignani is an Economic Consultant and is based in our London office. Pietro holds undergraduate and
postgraduate degrees in economics from the University of Rome and University College London. His training and
experience covers a very broad range of economic related subjects, with a focus on applied economics and quantitative
methods. Pietro has extensive experience in empirical methods, including the collection, manipulation and analysis of
international, national and EU data, at both macro and micro levels. Pietro has played a key role in a series of projects
requiring complex data management and modelling, the application of various econometric techniques and statistical
analysis as well as report drafting. Pietro recently led the research analysis of the long run impact of skills and qualification
attainment on employment, benefit and earnings outcomes using information from HMRC, DWP and the ILR. He is
currently leading the econometric analysis assessing the impact of training on firm level productivity and spillovers using
the ABI/BSD. Dr Gavan Conlon will act as project manager in any circumstances where Pietro is unavailable.
3.3
Project Initiation
The first stage of the analysis that we undertake involves meeting with BIS to ensure that the terms of reference are agreed
fully, and that the focus of the potential work is clearly mapped out (and the research protocol agreed). As part of this
important element of the work programme, we would agree the format of the deliverables, the audience, the roles and
responsibilities of the project manager on the LE side and agree the best way of working together to ensure smooth
delivery of the project. This has been scheduled for the first week of August 2011.
3.4
Progress Updates
As part of our commitment to quality management, we provide ongoing progress reports to our clients (as agreed – on a
fortnightly basis). We believe that these progress reports are invaluable and assist in ensuring that the general scope of the
project remains focused, as well as ensuring whether there are any risks associated with the project.
3.5
Liaison and communication
For the overall success of this project, we expect there to be strong communication links between the Department and
London Economics. We would establish at an early stage the working arrangements that best suit the Department for
Business, Innovation and Skills and work within those arrangements throughout the project to ensure that the burdens
placed on the Department for Business, Innovation and Skills are minimised at all stages.
3.6
Confidentiality arrangements
London Economics take the safeguard and use of data very seriously. As such we have implemented a number of processes
to ensure that any confidential data is used for the specific purpose intended by named individuals; the data is maintained
securely at all times; and that when each project is completed, the data is destroyed both physically and electronically so
that no further use is possible. We have included in an Annex our specific company policy in relation to the processing of
confidential data and would be happy to elaborate at any stage as necessary. In light of the work we regularly undertake,
London Economics is registered as a Data Controller with the UK Information Commissioner.
3.7
Internal Quality Assurance
To ensure the quality of any research deliverable, we have incorporated the time of Mr Patrice Muller, who is the managing
partner of London Economics. Patrice is a highly experienced economist and has led London Economics for more than 10
years. Prior to joining London Economics, he served the European Bank for Reconstruction and Development, as an
Executive Director for Canada and Morocco. He has provided economic advice and guidance on social, budget, tax and
social policy to prominent government organisations at the most senior levels. Between 1996 and 1998, Patrice held the
equivalent position to the Chief Economist of the Cabinet Office in the Government of Canada. Previously Patrice has held
various senior research positions with the Bank of Canada, and has also worked with the OECD. Patrice will be involved for
the duration of the analysis and will provide a key oversight role for the duration.
3.8
External Quality Assurance and research support
In addition to our internal quality assurance procedures, we have also added Dr Steve McIntosh (a Reader at the University
of Sheffield an Associate of the Centre for Economic Performance) to act as project advisor. He will ensure that the overall
quality and methodological soundness of the research is maintained throughout the project. Steve is an expert in the
labour market and education economics and has worked extensively across a number of central government departments.
London Economics
The impact of investment in intangible assets on productivity spillovers
9
4 │ London Economics’ expertise
London Economics recently worked with Dr McIntosh on a number of projects relating to the returns to vocational
qualifications for BIS. Steve is currently undertaking work for the Department relating to the impact of apprenticeships.
4
London Economics’ expertise
4.1
Expertise
Our team is comprised of skilled economists, benefiting from rigorous intellectual backgrounds. All our senior economic
consultants possess postgraduate economics degrees from leading universities, and have a wealth of academic and
practical experience. London Economics are able to combine academic rigour and expert contract management to provide
the Department for Business, Innovation and Skills with appropriate support to meet the needs of policy makers and other
relevant stakeholders. Below, we provide some information (and links) to recent technical work undertaken relating to
skills:








estimating the impact of training on firm level productivity and spillovers using ABI/BSD for BIS
estimating the outcomes associated with vocational qualifications (using the LFS) for BIS;
estimating the LT outcomes of education and training using HMRC/DWP/ILR data for BIS (here);
estimating the economic outcomes associated with HE qualifications for BIS (here);
estimating the elasticity of demand for FE (using the ILR and FE College data) for BIS (here);
developing a methodological approach for the evaluation of the Extended Schools programme for the Department
for Education (using NPD, IMD and PLASC) (here);
assessing the characteristics of those eligible to teach maths and science for the TDA for Schools (using the LFS and
TDA Teacher Information Line data) (here);
assessing FSM eligibility criteria for the Schools Food Trust (using LFS, GHS and FRS);
In addition to these specific analyses for various public sector organisations, we have undertaken a number of
comprehensive literature reviews for a range of public sector organisations using the approach detailed above including:










5
An assessment of discretionary penalties regimes for the Office of Fair Trading (here);
The economics of offending and re-offending for the Ministry of Justice;
The costs and benefits associated with parenting interventions for the Department for Education (here)
The nature and impact of hard core cartels for the Danish Competition Authority (here);
A review of international student support arrangements for BIS (here);
As assessment of the value of UK educational exports for BIS (here);
An economic study of patent backlogs and a system of mutual recognition for the IPO (here);
An evaluation of the Global Entrepreneur Programme for UKTI (here);
An evaluation of the High Growth Markets Programme for UKTI (here);
An evaluation of the Tradeshow Access Programme for UKTI (here)
Core Staffing
In Figure 2 overleaf, we have provided some information on the structure of the team that we have proposed, with some
additional details of their achievements in the following section.
Dr Gavan Conlon: Dr Gavan Conlon is a Partner at London Economics and will have overall responsibility for the direction
and delivery of the project. Gavan is an expert in the economics of education and has led over 50 education related
research projects during his time as an academic consultant (literature reviews, data collection and analysis, forecasting
and developing evidence based recommendations). Gavan has recently completed the analysis of the long run impact of
vocational qualification attainment using matched ILR/DWP/HMRC data and is currently leading the work estimating the
impact of vocational education and training on firm level productivity and spillovers. In the last 12 months, Gavan led the LE
10
London Economics
The impact of investment in intangible assets on productivity spillovers
5 │ Core Staffing
work relating to the assessment of the impact of private fee contributions on enrolment in FE for BIS using the ILR; the
analysis assessing the returns to vocational qualifications for BIS; the analysis assessing the returns to HE qualifications for
BIS supporting the recent HE White Paper; the value of educational exports and imports for BIS; and the research
establishing a methodology for evaluating the Extended Schools programme for the DfE. Gavan has a doctorate in
education economics from Oxford University and many publications in peer reviewed journals. He recently provided expert
evidence to the BIS Select Committee enquiry into higher education fees and funding. Gavan has been with London
Economics for 5 years.
Pietro Patrignani is an Economic Consultant and is based in our London office. Pietro holds undergraduate and
postgraduate degrees in economics from the University of Rome and University College London. His training and
experience covers a very broad range of economic related subjects, with focus on applied economics and quantitative
methods. Pietro has extensive experience in empirical methods, including the collection, manipulation and analysis of
international, national and EU data, at both macro and micro levels. He has completed three important thesis studies
during the course of his career, dealing with both micro and macro issues at empirical and theoretical level. Pietro is also
skilled in the identification and collection of economic and financial research relevant to a particular topic and critically
reviewing such literature in the preparation of reviews, evidence and project reports. He was formerly a member of a team
working on a project of the Italian Ministry for Economics and Finance concerning the allocation of public expenditure in
the European Union.
Since joining LE, Pietro has played a key role in a series of projects requiring complex data management and modelling, the
application of various econometric techniques and statistical analysis as well as report drafting. Pietro is currently leading
the research analysis of the long run impact of skills and qualification attainment on employment, benefit and earnings
outcomes using information from HMRC/DWP/ILR. Other recent projects include the analysis of the determinants of UKbased firms’ entry in high growth markets (for UK Trade & Investment) and the estimation of the returns to higher
education qualifications for BIS. He is currently lead-econometrician in the analysis of the returns to academic and
vocational qualifications in the United Kingdom, using data from the LFS and the BCS70 and assessing the impact of training
on firm level productivity and spillovers using the ABI/BSD. Pietro has been with London Economics for 5 years.
Figure 2: London Economics’ Team Structure
Core Project
Management Team
Internal Quality Assurance
Mr Patrice Muller
Partner
Dr Gavan Conlon
Partner
Project Director
Mr Pietro Patrignani
External Quality Assurance
Department for Business
Innovation and Skills
Economic Consultant
Project Manager, Data work
Steering group
Contact Manager
Dr Steve McIntosh
University of Sheffield and Centre
for Economic Performance
Core Project Team
Rasmus Flytkjaer
Economic Consultant
Quantitative Analysis
Mark Lewis
Junior Economic Consultant
Research Support
Rasmus Flytkjaer is an Economic Consultant at London Economics and has undergraduate and postgraduate degrees in
economics from the University of Aarhus in Denmark. He has previously worked on a number of projects including cartel
London Economics
The impact of investment in intangible assets on productivity spillovers
11
6 │ Quality Assurance
damages in the car glass industry (Hausfeld), market power in water testing (Eversheds), a study of the meat market at
consumer level (SANCO), a critique of the A8 indicator from Education at a Glance (OECD), the impact of state guaranteed
bonds issued by banks (DG ECFIN), the value added from British insurance brokers (BIBA), and an impact assessment of a
change in auditor liability laws (Hong Kong Institute of Certified Public Accountants). Prior to this, Rasmus worked as a
research assistant at the Department of Economics at Aarhus School of Business while studying for his degree. Rasmus has
been with London Economics for 1 year.
Mark Lewis is a Junior Economic Consultant at London Economics. Mark holds a BSc in Economics from University College
London. He is a member of the Education team at London Economics and his role includes detailed quantitative and
qualitative analysis; research; literature reviews; and the compilation of data from various sources including the
International Monetary Fund database, the Eurostat database, Zephyr, Amadeus and Bloomberg. Since joining London
Economics, Mark has been involved heavily in a project looking at the returns to intermediate and low level vocational
qualifications for the UK Commission for Employment and Skills. Mark has been with London Economics for 2 years.
6
Quality Assurance
Quality Assurance is at the core of the London Economics business. Our staff are members of several professional
organisations (such as the Royal Economic Society, the UK Evaluation Society and the American Economic Association) and
every strand of our work is aimed at providing high quality academically robust, cost effective research and analysis. All the
members of the team have an exceptionally strong academic background and many have several articles published in peerreviewed academic journals. Much of the work that we undertake is routinely peer reviewed. As such there is an implicit
and explicit requirement to ensure that the highest quality academically robust research is undertaken. We would welcome
the possibility that this work might be subject to wider review and we are happy to incorporate any comments/ suggestions
into our reports. In recognition of the quality of the research we undertake, we are on a number of panels that review the
comprehensiveness and quality of research undertaken on behalf of central government departments and NDPBs. These
skills with rigorous quality assurance measures to ensure that the deliverables provided to the Department meet
expectations.
For all projects we undertake, we ensure that there is a regular update of progress (either by e-mail or telephone) between
the project manager and the Department. As such, there is little risk of any quality-related issues escalating before
appropriate action may be taken. In addition to the weekly monitoring, a team-wide stock-taking exercise will take place
every two weeks. This not only helps keeping the project on track but also ensures that the information is fully shared
among all team members. In accordance with the company’s quality assurance policy, any reports produced by the project
team will be reviewed by two members of the senior management team of London Economics.
London Economics has recently been awarded ISO9001:2008 accreditation for its quality management systems.
6.1
Internal Quality Assurance
To ensure the quality of any research deliverable, we have incorporated a significant amount of time of Mr Patrice Muller,
the managing partner of LE. Patrice is a highly experienced economist and has been employed by London Economics for
more than 10 years. Prior to joining London Economics, he served the European Bank for Reconstruction and Development
(EBRD), as an Executive Director for Canada and Morocco. Between 1996 and 1998, Patrice held the equivalent position to
the Chief Economist of the Cabinet Office in the Government of Canada. Patrice will be involved in the research activity for
the duration of the analysis and will provide a key oversight role throughout.
6.2
External Quality Assurance
In addition to our internal quality assurance procedures, we have also added Dr Steve McIntosh (University of Sheffield) to
act as project advisor. He will ensure that the methodological soundness of the research is maintained throughout. Steve is
an expert in labour market and education economics and has worked extensively across a number of central government
departments. LE recently worked with Dr McIntosh on a number of projects including a recent analysis for BIS on the
economic outcomes associated with vocational qualifications. In the recent past, Steve has also advised a number of other
government departments including BIS and UKCES on the value of vocational qualifications; the (former) DCSF on
estimating the benefits of raising the education participation age; and the DWP on the impact of a lack of qualifications on
12
London Economics
The impact of investment in intangible assets on productivity spillovers
7 │ Risk Management
employment chances. Steve has also provided evidence to the House of Lords Select Committee on Economic Affairs,
concerning employment and training opportunities for low-skilled young people. Steve has worked with London Economics
on various projects over the last 4 years.
7
Risk Management
We have undertaken a documented risk assessment (factor, probability, impact) of the factors that may either cause a
delay in the provision of the work or the provision of research is lower than expected quality along the following lines:
staffing and resourcing (quantity, quality, technical expertise, attrition); sector knowledge and experience (knowledge of
topic); information availability and access (coverage and understanding); and delivery (project management, quality
assurance). We have identified no significant risks that may impair the delivery of this research work to the Department on
time and on budget. We would be happy to provide additional information as necessary.
8
Timelines and Costs
8.1
Costs
Given our specific experience in undertaking work of this type; our interest in the project; and the professional approach
we can offer, we have proposed a price of £32,600, which is a fixed price and remains valid for 3 months from the
submission of this proposal (subject to VAT). We can ensure that the team members named on any project would actually
deliver the work and that there is a significant proportion of time allocated to senior members of staff to ensure that the
quality of the analysis is maintained. There are no expenses or any other hidden costs.
We have scheduled three meetings with BIS as part of the proposal, with the additional cost of an extra meeting being £250
plus VAT. In addition, although the proposal includes a final meeting/workshop with the academic community, we would be
happy to undertake additional sessions to assist with the dissemination policy of the Department (at the same rate). In
addition, upon publication, we will place the report on our website and will send out a communication to our online
‘followers’ (both academic and non-academic economists) about the report, along with the executive summary. We believe
that this is one of the most effective ways of disseminating important material rapidly and generating substantive comment
on the topic.
Table 2: Proposed costs of the analysis
Name of Consultant
Dr Gavan Conlon (Partner/ Project Director)
Mr Pietro Patrignani (Economic Consultant/ PM)
Mr Rasmus Flytkjaer (Economic Consultant)
Mr Mark Lewis (Junior Economic Consultant)
Mr Patrice Muller (Partner/ Internal quality Assurance)
Dr Steve McIntosh (External quality assurance)
Expenses
Total
8.2
Day Rate
£1,000
£700
£500
£500
£1,000
£800
Days
5.5
15.0
25.0
4.0
0.5
2
Cost
£5,500
£10,500
£12,500
£2,000
£500
£1,600
0
£32,600
Timelines
The project plan is based on the assumption that the project commences on 1 st August 2011 and concludes with the
provision of a Draft Final Report covering the entire analysis by 30 th September 2011, with a Final report to be submitted
thereafter (to be agreed with the Department). In Figure 3 overleaf, we present a summary and detailed information on the
timings associated with this project as well as information on the key roles and responsibilities of the team at each stage of
the project.
London Economics
The impact of investment in intangible assets on productivity spillovers
13
8 │ Timelines and Costs
10-Oct
03-Oct
26-Sep
19-Sep
12-Sep
05-Sep
29-Aug
£850
22-Aug
1.00
15-Aug
£850
£500
£700
£900
08-Aug
Total cost (£)
0.5
1.00
0.50
1.00
1.00
Timeline
01-Aug
Total days
Dr Steve McIntosh
Mark Lewis
£500
£800
Rasmus Flytkjaer
£500
£1,000 Patrice Muller
Pietro Patrignani
£700
Key tasks/outputs
£1,000 Dr Gavan Conlon
Figure 3: Timeline for analysis
Phase 1: Development of study approach and methodology
Inception meeting (1st August 2011)
Refinement of proposed approach/methodology, resources and work schedule
Ongoing liaison and fortnightly updates
Quality Assurance
0.5
0.5
0.5
1.0
0.5
u
Phase 2: Exploration of matched data
-
Refinement of research protocol
Delivery of agreed research protocol
0.5
0.5

Phase 3: Systematic Literature Review
2.0
0.25
2.25
£1,200
1.0
1.0
0.25
2.25
£1,400
2.0
2.0
0.25
8.25
£4,600
3.0
14.0
0.25
17.25
£9,300
5.0
1.0
0.5
1.0
5.0
0.5
0.5
12.50
1.50
1.50
£8,400
£850
£1,350
0.5
0.5
0.5
0.5
1.00
1.00
£850
£850
5.5
15.0
- Stage 1: Development of parameters and identification of potential sources
The searching of appropriate electronic/internet sources
The searching of appropriate print sources (e.g. journals, textbooks, research reports)
The hand searching of appropriate print sources
The searching of 'grey' (i.e. unpublished) literature
- Stage 2: Development and application of exclusion criteria and initial filter of articles
Appropriateness
Selection bias
Performance bias
Attrition bias
Detection bias
- Stage 3: Application of exclusion criteria and second filter of articles
- Theoretical foundations on productivity spillovers (definition and measurement)
- Main Qualitative and quantitative evidence on the following
Nature, magnitude, economic importance, beneficiaries and level)
Mechanisms by which productivity spillovers arise
Socio-economic processes
Influence on investment decisions
Barriers to further investment
- Stage 4: Data extraction during full scale review of articles
- Details of study outcomes and findings
- Information about the characteristics of included studies
- Verification of study eligibility for the review
- Details of study characteristics
- Details of study methods
- Details of study data and information sources
- Details of study participants (i.e. populations and sub-groups)
- Reliability check for data collection/extraction
4.0

u
Phase 3: Drafting and reporting
Report writing and provision of DF Report
Analysis of evidence gaps and possibilities for future research of secondary data
Development of recommendations
DF Report with BIS for comment
Report writing and provision of Final Report
Presentation of final report and wider workshop (academic technical)
Number of days

2.0
25.0
4.0
0.5
2.0
52.0 £32,600

u
London Economics main activity
 Key output
Total Cosultant Cost (£)
14
£5,500 £10,500 £12,500 £2,000
£500
£1,600
£32,600
London Economics supporting activity
BIS activity
u Meeting with BIS
London Economics
The impact of investment in intangible assets on productivity spillovers
i
For more details see “Investing in innovation - Findings from the UK Investment in Intangible Asset Survey” published by NESTA
Marrano, M.G. and Haskel, J.(2006), How Much does the UK Invest in Intangible Assets?, Department of Economics Working Paper No.
578, Queen Mary, University of London, London.
iii Marrano, M.G., Haskel, J. and Wallis, G. (2007), “What Happened to the Knowledge Economy? ICT, Intangible Investment and Britain’s
Productivity Record Revisited”, Department of Economics Working Paper No. 603, Queen Mary, University of London, London
iv
“Driving economic growth: Innovation, knowledge spending and productivity growth in the UK”, published by NESTA.
v Haskel J. And Pesole, A. “Productivity and Innovation in UK Financial Services: An Intangible Assets Approach” Discussion paper
2011/02, Imperial College Business School, London
vi The two most recent papers cited for the UK are among the studies making use of the Innovation Index developed by NESTA.
vii
Fukao, K., Miyagawa, T., Mukai, K., Shinoda, Y. and Tonogi, K.( 2008), “Intangible Investment in Japan: New Estimates and
Contribution to Economic Growth”. Stat Discussion Paper Series 015
viii Rooijen-Horsten, M. van, Bergen, D. van den, Haan, M. de, Klinkers, A. And Tanriseven, M. (2008), “Intangible Capital in the
Netherlands: Measurement and Contribution to Economic Growth”, Discussion Paper No. 08016, Statistics Netherlands
ix Barnes, P. and McClure, A. (2009),” Investments in Intangible Assets and Australia’s Productivity Growth” and Barnes, P (2010)
“Investments in Intangible Assets and Australia’s Productivity Growth: Sectoral Estimates”, Productivity Commission Staff Working
Paper, Canberra
x Jona-Lasinio C., Iommi, M. Stefano Manzocchi S. (2011) “Intangible Capital and Productivity Growth in European Countries” LLEE
Working Paper Series, Working Paper No. 91
xi Acemoglu, D., and Angrist, J., "How Large Are Human Capital Externalities? Evidence from compulsory schooling laws." in Bernanke
and Rogoff, eds., NBER macroeconomics annual, Vol. 15: MIT Press, 2000, pp. 9-59
xii Mas, A., and Moretti, E., (2006) “Productivity Spillovers in the Workplace”, NBER Working Paper, May 2006
xiii Moretti, E., “Workers’ Education, Spillovers and Productivity: Evidence from Plant-Level Production Functions,” American Economic
Review 94(3) (2004).
xiv Lucas, Robert E., Jr. "On the mechanics of economic development." Journal of Monetary Economics, February 1988, 22(1), pp. 3-42.
xv Autant‐Bernard, C., Guironnet J.P., Massard, N. (2010) “Productivity Changes and Intangible Assets: Evidence from French Plants”
Groupe d’analyse et de Théorie Économique Lyon ‐ St Étienne W P 1005
xvi O’Mahony M. and M. Vecchi (2009) “R&D, knowledge spillovers and company productivity Performance”, Research Policy, 38, 35–44.
xvii
Geppert, K. & Neumann, A. (2011) "Regional Patterns of Intangible Capital, Agglomeration Effects and Localised Spillovers in
Germany," Discussion Papers of DIW Berlin 1112, DIW Berlin, German Institute for Economic Research.
xviii Marrocu E., Paci, R. and Pontis, M. 2009. "Intangible capital and firms productivity," Working Paper CRENoS 200916, Centre for
North South Economic Research, University of Cagliari and Sassari.
xix Haskel, J., and Wallis, G. (2010) Public Support for Innovation, Intangible Investment and Productivity Growth in the UK Market
Sector, IZA Discussion Paper No. 4772
xx Spillovers occur because the workings of the market or markets for an innovative product or process create benefits for consumers
and non-innovating firms are defined as market spillovers (Jaffe, 1996)
xxi Krugman P., (1991), Economic Geography and Trade. Cambridge, MA: MIT Press
xxii Griliches, Z., "The Search for R&D Spillovers," Scandinavian Journal of Economics, 1993
ii