Is the EU ready for the next generation of investment? A cross-country sectoral growth accounting analysis of intangible capital in France and Germany

Motivated by recent calls for new investment to enhance EU competitiveness, this paper compares intangible capital accumulation in France and Germany, documenting large cross-country differences in investment levels, particularly in software and organizational capital. Yet, both countries have experienced similar labor productivity growth (LPG) from 1995 to 2021, raising questions about investment efficiency and potential measurement issues, especially in light of contrasting evidence from firm-level surveys. To shed further light on this puzzle, we conduct an econometric cross-country sectoral growth accounting analysis based on capital services growth rates. The results show that intangible capital contributed more to LPG in Germany than in France, despite the lower investment levels in the former. We interpret this finding primarily as reinforcing concerns about cross-country measurement inconsistencies and highlight the need for harmonizing intangible capital statistics to support more robust policy comparisons at the EU level.