Measuring ICT Impact on Growth: a Survey of Recent Findings

Vincenzo SpieziaSenior EconomistHead, ICT UnitDirectorate for Science, Technology & IndustryOECD

ICT: a General Purpose Technology

Some technical change comes in small incremental improvements; some comes as radical changes in products and processes.

Every once in a while a new technology comes onto the scene that impacts on more or less everything in our lives: •what we produce•how we produce it•how we organize and manage production •the location of productive activity •the infrastructure we need •the laws we require concerning such things as property rights and permitted forms of business organization.

Richard Lipsey calls such technologiesGeneral Purpose Technologies (GPTs)

In my presentation, I will try to make…

4 points about ICT and Growth:

1.It is not only about productivity

2.Productivity depends on intangibles…

3.…but intangibles are fed by ICT

4.Research Agenda

What we produce

ICT as a product innovation

ICT and GrowthICTs area major driver of GVA growth in

OECD •ICT sectors have been growing faster than non-ICT•ICT services even faster•Particularly computer & related services

Similar trend for employment growth

ICT and Growth

ICT sector feeds growth through 3 channels:

• Final demand: ICT offers new goods and services for consumers;

• Demand multiplier: ICT increases demand for the output of other industries;

• Supply multiplier: ICT creates new opportunities for the supply to other industries.

Final demand

Communications have been the fastest-growing household expenditure item since 1995

ICT services have been the fast-growing category in trade in services

Final demand

Propensity to consume ICT differs among countries

Share of households ICT expenditures in OECD countries, 2005

0

1

2

3

4

5

6

7C ommunic ation Information tec hnology(% )

Final demand

Propensity to consume ICT differs among households

Industry linkages:Where do ICT go?

Source: Robert D. Atkinson

0

50000

100000

150000

200000

250000

300000

350000

1995 2000 2006

non ICT ICT

4,4%

2,9%

ICT contribution to growthCompare:• actual growth rate of total output;• the growth rate that would have occurred if

no ICT output was produced.Ex: Finland

ICT contribution to growth1995-2000

Largest in Finland, US, SwedenLarge also in UK and NetherlandsSmall in Germany and Italy

8.8%

7.0%5.8%

6.7% 6.2% 6.0%5.2% 5.2%

0.1%

6.2%

13.0%

8.1%

3.5%

5.6%

4.4% 3.5% 3.4% 2.6% 2.4% 2.1% 2.1% 2.0% 2.0% 2.0% 1.7% 1.7% 1.6% 1.5%0%

2%

4%

6%

8%

10%

12%

14%

Total output growth ICT contribution

4.7% 4.8%4.3%

6.0% 6.2%

4.2%

8.8%

3.7%

5.1%

2.0%

3.7% 4.1%

3.1% 2.9% 2.5% 2.4% 2.2% 2.0% 2.0% 1.9% 1.9% 1.9% 1.7% 1.2%0%1%2%3%4%5%6%7%8%9%

10%

Total output growth ICT contribution

ICT contribution to growth2001-2006

Largest in UK, Finland and SwedenLarge also in US and BelgiumSmall in France and Italy

How we produce

ICT as a process innovation

ICT and Productivity

• Solow’s paradox / large TFP

• Progress in measurement

• OECD: Hedonic prices, Capital services, Software, Output in services, STAN Database, Productivity database

The Economic Impact of ICT: Measurement, Evidence and Implications (2004):1. ICT investments account for a significant part of GDP growth;

2. ICT investments contribute to MFP growth;

3. ICT producing sectors raise overall productivity;

4. ICT services increase productivity in using sectors;

5. ICT + other factors have stronger effects at the firm level

ICT and Productivity• ICT investment matters more than non-ICT…• …but MFP growth remains the main driver• ICT investment has no impact on MFP growth

since 1995(Van Ark, 2007)

What explains large MFP?

3 explanations

1.What we measure is still badly measured:Capital services, hedonic prices, poor industry data

2.We fails to measure “complementary” investments:Organisational changes (Oulton& Srinivasan, 2005)

3.We fails to measure intangibles:Van Ark (2004), McGrattan and Prescott (2005), Corrado, Hulten, and Sichel (2005; 2006); Fukao et al. (2007)

Intangibles The Knowledge Capital of the Firm

Source: Marrano, Haskel and Wallis based on Corrado, Hulten & Sichel

How important are intangibles?

Intangibles explain a large part of MFP

Significant impact also in the UK and Japan

USA

How we produce

ICT as a GPT

ICT as a GPTOrganisational changes, skills, innovation, business

models, intangibles are complementary to ICT

ICT creates opportunities to change organisation, improve skills, speed up innovation and invest in

intangibles

Intangibles are endogenous!

ICT and InnovationICT-related patents:• 35% of OECD PCT filings in 2005;• over 50% in Singapore and Finland• more than doubled in China over 1996-2005

Patterns and Trends (1/5)

0%5%

10%15%20%25%30%35%40%45%50%

1985-89 2000-05

Innovation in non-ICT sectors (patents) depends on innovation inputs from ICT (citations of ICT patents)

The share of ICT citations in total citations in OECD has increased by 7.5 percentage points, from 16.7% in 1985-89 to 24.2% in 2000-05

Patterns and Trends (2/5)The intensity of ICT citations differs among countries:In Finland (47%) almost double OECD (24%).Very high also in Korea (36%), the Netherlands (35%) and Japan (31%).

0%5%

10%15%20%25%30%35%40%45%50%

1985-89 2000-05

Patterns and Trends (3/5)Intensity of ICT citations has increased faster in some countries: over 4.5 times in Finland and Korea,3 times in Sweden.Smaller increase in countries starting with a high ICT intensity Japan, the Netherlands and the US.

0%5%

10%15%20%25%30%35%40%45%50%

1985-89 2000-05

Patterns and Trends (4/5)

The weight of ICT citations is the largest in ICT industries

However, ICT citations account for a large share of total citations also in some non-ICT industries

2000-05

ANALYTICAL CHALLENGES

Towards a Research Agenda

Measuring• Intangibles• Organisation• Firm-networks• e-business

• Hedonic prices• Industry-level data• Services output• R&D

Analysing interactions

Within firms• between ICT and complementary investmentsAmong firms• ICT-enabled networks• Spillovers• e-business• Between firms and the market• competition• e-commerceAmong industries• between ICT-producing and ICT-using industriesAmong technologies• ICT-driven innovation