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Intangible Capital, Risk and Interindustry Differences in Rates of Return: Evidence from Germany

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Bernd Görzig, Martin Gornig, Axel Werwatz

Birmingham [u.a.]: INDICSER, 2012, 22 S.
(INDICSER Discussion Paper ; 21)


Researchers have found plenty of evidence that profit rates vary considerably across industries, particularly in the service sector (or: particularly between manufacturing and sector sectors). We analyze the persistence and the determinants of rate of return differences among the sectors of the German economy. Our analysis proceeds in two stages. In the first stage, we investigate the persistence of the inter-sectoral rates of return differences during a period of nearly 40 years (1970-2007). Using data for Germany from the use EU-KLEMS database, our analysis of both beta-convergence and sigma-convergence shows that there is some convergence but that relative positions are nonetheless fairly stable and persistent. The variation of return rates across sectors thus has some transitory and permanent components. In the second stage of our analysis, we attempt to explain this variation by using a rich data set based on establishment-level information from the EUKLEED project available for the 1999 to 2003 period. We use both more established factors of intersectoral rate of return differences such as the sectoral intensities of tangible and human capital but also more novel explanatory variables such as sectoral risk and the intensity with which sectors employ intangible capital. We find that the more traditional explanatory variables have less explanatory power than their more recent counterparts. In particular, sectoral risk is found to have a strong and robust positive effect on the rate of return to capital of a sector. These results are driven by the service industries who tend to have both very high values of the risk indicators as well as above-average measured returns.

Martin Gornig

Research Director in the Firms and Markets Department

Topics: Productivity

JEL-Classification: L23;E1;D24
Keywords: Rate of return on capital, Inter-sectoral convergence, Intangible capital, Service industries, Risk aversion
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