Treating Intangible Inputs as Investment Goods: The Impact on Canadian GDP

National income accounts view most business expenditures on intangible goods as acquisitions of intermediate inputs that get entirely used up in the production of final output. After arguing against this convention, I construct a data set to document firms' expenditures on an identifiable list of intangible items for which there is now wide agreement among national accountants. I then examine the implications of treat- ing intangible spending as an acquisition of final (investment) goods on GDP growth for Canada. I find that investment in intangible capital during the years 1998 to 2004 is as large as the investment in physical capital. This result is in line with similar findings for the US, the UK and Japan. Furthermore, the growth in GDP and labor productivity may be underestimated by as much as 0.1% during this same period. In light of current debates at various statistical agencies regarding capitalizing intangi- bles, this study confirms the need to indeed consider such expenditures as investments and to collect this data as an integral part of the system of national income accounts.