Investment in knowledge

The ability to create, distribute and exploit knowledge is increasingly central to a country's competitive advantage and rising standard of living, as the OECD has observed. In this vein, Table 11.1 starts by introducing a new concept of ‘investment in knowledge’, defined as spending on higher education, research and development, and software. It covers spending by both the public and private sectors, but excludes consumer spending on software.

It can be seen that by 1998 total annual spending on knowledge averaged 4.3% of GDP across the selected countries. As the second data column shows, this level was achieved after such spending had grown in real terms at 4.4% a year since 1991. A comparison with the final column shows that over this period mean investment in knowledge grew at more than twice the rate at which conventional investment in structures and equipment (gross fixed capital formation) grew. And whereas the rate of conventional investment actually fell in many countries during the period, investment in knowledge accelerated in all countries.

The United States' high level of total investment in knowledge is not surprising – it is, after all, the country at the world's technological frontier. More surprising are the high levels and rates of growth for Sweden and tiny Finland. At the other end of the league, Ireland's low level of investment does not mean it is asleep. Its attainment of the highest rate of growth over the period suggests it is catching up rapidly.