INTANGIBLE CAPITAL AND DEVELOPMENT 101
index as a production factor in place of intangible capital. The log-log specification means that we can interpret the resulting regression coefficients as elasticities of output with respect to the different production factors, since the underlying functional form for the production function is Cobb-Douglas. Table 5.4 reports the results of our estimation of output elasticities across different production factors and different subsets of countries. In all cases we use country fixed effects and time dummies. The first column reports the results of estimating the production function for all countries using our human capital index rather than intangible capital as a factor of production. In this formulation, only produced capital has a significant coefficient; the elasticities for natural and human capital are not significantly different from zero. In the second column we report the estimated coefficients for a production function where we use intangible capital rather than human capital as a production factor. The largest elasticity is for produced capital, but now both natural and intangible capital are significant factors of production. The final two columns in table 5.4 report the estimated elasticities when we split the sample into developed and developing subsets of countries. In each case we treat intangible wealth as a factor of production. For developing countries the results are very similar to those obtained when the sample consists of all countries—produced, natural, and intangible capital have significant output elasticities, and the magnitude is similar in both samples. When the sample is limited to countries of the Organisation for Economic Co-operation and Development (OECD), however, only intangible capital is significant and the elasticity is very large, roughly 0.5. Summing up, we would intuitively expect that produced, natural, and human capital would all be statistically significant factors of production, but we obtain this result only when we treat intangible capital, rather than the human capital index, as a factor of production. This is consistent with the preceding subsection on explaining intangible capital, which shows that intangible capital TABLE 5.4
Elasticities of Output with Respect to Production Factors All Countries
All Countries
Developing Countries
OECD Countries
0.398
0.320
0.313
..
Natural capital
..
0.068
0.072
..
Human capital index
.. 0.176
0.169
0.502
Produced capital
Intangible capital
Source: Authors’ calculations. Detailed estimation results are reported by Ferreira and Hamilton (2010). Note: .. statistically insignificant coefficient.