The Effects of Intangible Capital on Business Productivity in Spain Before ..pdf

The Effects of Intangible Capital on Business Productivity in Spain Before the Crisis Alfonso Badiola-Sánchez * and Margarita Alonso-Martínez** An efficient use of management tools is necessary for a business entity to gain competitive advantage. The intangible elements of business contribute to the existence of constant scale performances in the productive processes of the sector. Therefore, an inversion of these tools is recommended to allow an interrelation among companies and company employees, and company environment. This paper uses the panel data production function in addition to the intangible assets , capital and labor, for the companies in the Spanish region to assess the need to invest in knowledge management assets. Introduction Spain is a member state of the European Union (EU) with a parliamentary monarchy type of government. It is divided into 17 regions with Madrid as its capital. This study estimates the effect of intangible assets on regional output using econometric techniques of panel data for the period 2002-2006 for all Spanish regions. An index variable consisting of intangible assets is developed in order to compare the effect of Knowledge Management (KM) on production. Euro (¤), the single European currency, was introduced in 2002, ushering in a period of dynamism experienced by the Spanish economy, derived from the European monetary integration and a large demographic expansion (Banco de España, 2007). This period ends in 2006, due to the beginning of a gradual economic slowdown in 2007 and a moderation in domestic demand (Banco de España, 2008). The study estimates the flow production function of traditional assets, including the intangible assets—labor, capital and another inputs. Since a part of the regional output can be explained by intangible assets, the study concludes that KM, as a co