Agglomeration Spillovers from Intangible Capital: An Analysis of UK City Regions

The importance of intangible capital as a driver of productivity growth is being increasingly recognised; however as yet, its importance at a regional level has barely been considered. In this paper we present recently constructed occupationally defined measures of intangible capital at the firm level for the UK within a regional framework. We analyse the extent to which returns to intangible capital exceed their direct value to individual firms and generate regional spillovers. Our regional analysis is defined by City Regions, which reflect the commuting patterns of skilled workers and therefore represent a more economically meaningful unit of geographic delineation. Our measures of intangible capital focus on ICT, R&D and organisational capital, and we separately consider the individual associations as well as considering the aggregate association with productivity. We estimate firm level determinants of productivity, measured not only in terms of labour productivity but also in relation to wages, controlling for regional characteristics that include intangible capital. Our findings suggest there is a positive association between productivity and organisation capital in particular, consistent with the presence of spillovers.