In estimating intangible investment in Japan at the industry level, we find a high intangible investment/gross value added ratio in the information technology (IT) sector and negative growth rates in intangible capital in 13 industries over the decade from 2000. When we examine the impacts of intangible investment on total factor productivity growth, we find a significant and positive effect on total factor productivity growth in the market economy. In a revised estimation that considers intertemporal knowledge spillovers, the estimated rate of return on intangibles in the IT sector is quite high after the IT revolution. The results imply that intangible assets have been underinvested in the IT sector.

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