The Economic Impact of ICT

The Economic Impact of ICT

Measurement, Evidence and Implications You or your institution have access to this content

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09 Mar 2004
9789264026780 (PDF) ;9789264021037(print)

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Information and communications technology (ICT) has become a key driver of economic growth over the past decade. The rapid diffusion of the Internet, of mobile telephony and of broadband networks all demonstrate how pervasive this technology has become. But how precisely does ICT affect economic growth and the efficiency of firms? And how well can these effects be measured?

This report provides an overview of the economic impact of ICT on economic performance, and the ways through which it can be measured. Using available OECD data, the first part of the book examines the available measures of ICT diffusion, the role and impact of ICT investment and the role of ICT-using and ICT-producing sectors in overall economic performance. The second part of the book offers nine studies for OECD countries, based on detailed firm-level data and prepared by researchers and statisticians from a wide range of OECD countries. These studies use a variety of methods and provide detailed insights on the effects of ICT in individual countries.

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  • Introduction and Summary

    This chapter summarises the main findings of this report. It shows that ICT is having farreaching impacts on economic performance and the success of individual firms, in particular when it is combined with investment in skills, organisational change, innovation and new firm creation. These impacts can be observed in firm-level studies for many OECD countries, but have only translated into stronger economic performance at the economy-wide or industry level in a few OECD countries. The limited impact of ICT at the aggregate level in many OECD countries is not necessarily due to lack of investment in ICT, but more to lack of complementary changes and investment that enable the full exploitation of ICT. The chapter also identifies some issues that will require further work, in developing better methods and data, and in further empirical analysis...

  • The Diffusion of ICT in OECD Economies

    This chapter examines the diffusion of ICT across OECD countries. The chapter uses recently developed official statistics that provide a sound basis for international comparisons. Certain ICT technologies, such as the Internet, have now diffused to almost all businesses of more than 10 employees in several OECD countries. Others, such as broadband technologies, are at an earlier stage of the diffusion process. The chapter also shows that large differences in the uptake of ICT technologies persist across the OECD, both between and within OECD countries. Cost differentials and structural differences are among the factors explaining these differences. The state of the business environment in different OECD countries is also an important factor as it affects the degree to which firms can take full benefit from the potential offered by ICT...

  • The Decision to Adopt Information and Communication Technologies

    The paper aims, firstly, at explaining the decision of firms to adopt ICT. To this end, we present econometric estimates of a basic and extended version of a model of adoption, where the second approach investigates the role of new workplace organisation in adoption decisions. The second goal of the analysis is to derive from the model estimates a set of policy recommendations. The empirical analysis of the adoption decision yields a quite robust pattern of explanation, which is largely in line with theory. Estimation of the extended model shows that the introduction of new work practices favours the adoption of ICT; however, we also find evidence for the reverse relationship, indicating that ICT adoption and organisational change are, to some extent, complements. Based on the explanatory part of the study, we identified six areas of policies suited to promoting the adoption of ICT: enhancing the human capital base of the economy, enhancing the flexibility of the labour market, securing more intensive competition, fostering innovative activities, increasing macroeconomic stability, and improving the regulatory framework for e-business. The results thus support a framework-oriented policy design rather than a more activist policy orientation....

  • ICT Investment in OECD Countries and Its Economic Impacts

    This chapter examines the measurement of ICT investment and its role in economic growth. It explores the problems that exist in producing reliable measures of ICT investment and comparing them across countries. Particular attention is also given to the issues associated with the measurement and comparison of ICT prices. The chapter also discusses how measures of ICT investment and capital can be used to make a quantitative assessment of the economic impacts of ICT. Estimates of such impacts are presented for a range of OECD countries...

  • ICT Production and ICT Use

    This paper examines the roles of the ICT-producing sector and of key ICT-using industries in overall productivity growth in OECD countries. The ICT manufacturing sector, in particular, has been characterised by very high rates of productivity growth in many countries and provides a large contribution to labour productivity growth in Finland, Ireland and Korea. In a few countries, notably the United States and Australia, certain ICT-using services have also experienced an aboveaverage pick-up in productivity growth in the second half of the 1990s. Differences in the measurement of productivity in ICT-producing and -using industries across countries complicate the cross-country analysis...

  • The Effects of ICTs and Complementary Innovations on Australian Productivity Growth

    Australia experienced both rapid uptake of ICTs and strong productivity growth in the 1990s. Growth accounting has established some links between the two, but the existence of productivity gains from complementary product and process innovations remained uncertain. Analysis in this paper using firm-level data from the Australian Business Longitudinal Survey shows positive and significant links between ICT use and productivity growth in manufacturing and a range of service industry sectors. Firm-characteristics were found to be important in identifying businesses using ICTs while significant interactions were also found between ICT use and complementary organisational characteristics (including skill, improved business practices and business restructuring) in raising productivity. Transition dynamics and time lags were of importance. After an initial productivity boost associated with the uptake of selected ICTs, productivity effects were estimated to have tapered off over time. Thus, the study suggests that the ultimate productivity effect of a new innovation is a step up in levels, rather than a permanent increase in the rate of growth...

  • ICT, Innovation and Business Performance in Services

    Using broadly comparable panel data for German and Dutch firms in services, this paper analyses the importance of ICT capital deepening and innovation for productivity. We employ a model that takes into account that innovation and ICT use may be complementary. The results show that the contribution of ICT-capital deepening is raised when firms combine ICT use and technological innovations on a more permanent basis. Moreover, the joint impact of ICT use and permanent technological innovation on productivity appears to be of the same order of magnitude in the two countries. However, the direct impact of innovation on multi-factor productivity (MFP) seems to be more robust for Germany than for the Netherlands...

  • Firm Performance in the Canadian Food Processing Sector

    This chapter investigates the evolution of industrial structure in the Canadian food processing sector and its relationship to technological change. It uses a dataset combining advanced technology use that is derived from a 1998 special survey on advanced technology use in the food sector that is linked to data on firm performance derived from administrative records covering the period 1988-1997. The chapter first examines the characteristics of firms (size, nationality, emphasis given to training, innovativeness) that adopt advanced technologies and then how the use of these technologies is related to plant performance (growth in productivity and market share). Plants that adopted more advanced technologies enjoyed superior productivity growth. Process control and network communications technologies are particularly important to productivity growth in the foodprocessing sector. Those plants that increased their relative productivity growth and used more advanced technologies saw their market share increase...

  • Information Technology, Workplace Organisation, Human Capital and Firm Productivity

    This chapter is based on a multivariate cross-section analysis of data of 1382 Swiss firms for the year 2000. It shows that labour productivity correlates positively a) with ICT indicators measuring the intensity of use of internet and intranet respectively by firms’ employees; b) with variables for new forms of workplace organisation such as team-work, job rotation and decentralisation of decision making; and c) with human capital intensity. Some evidence is also found for complementarities between human capital and ICT capital with respect to productivity but not between organisational capital and the other two kinds of inputs...

  • ICT and Business Productivity

    Widespread use of ICT in Finnish business enterprises is quite recent. Contrary to what was believed during the new economy boom, the increasing use of ICT is primarily a phenomenon within firms; the contribution of restructuring to the observed changes in aggregate ICT-intensity is rather marginal. Decompositions of productivity growth suggest, however, that experimentation and selection are quite intense among young ICT-intensive firms. After controlling for industry and time effects as well as labour and other firm-level characteristics, the additional productivity of ICT-equipped labour ranges from 8% to 18% corresponding to roughly a 5% to 6 % elasticity of ICT capital. The effect is much higher in younger firms and in ICT-providing activities. The finding for firm age is consistent with the need for ICT-complementing organisational changes. The finding for ICT-providing activities is not driven by the communications equipment industry but rather by ICT services. Overall, the excess productivity induced by ICT seems to be somewhat higher in services than in manufacturing. Manufacturing firms benefit in particular from ICTinduced efficiency in internal communication (linked to use of local area networks or LANs) whereas service firms benefit from efficiency in external (Internet) communication. We find weak evidence for the complementarity of ICT and education....

  • Enterprise E-commerce

    Measurement of e-commerce in the United Kingdom, which started in 2001, has moved from assessment of usage by firms to analysis of its economic effects on firm performance. The programme of work at ONS has so far focused on analysis aspects of the technology adoption process which affect ability to identify performance effects, and the productivity and market efficiencies which can be detected from large scale surveys. This chapter brings together evidence from three UK sources, the enterprise e-commerce survey, the annual business inquiry and monthly producer price inquiries over the period 2000-2001. Despite the high levels of turbulence and change in electronic markets over this period, productivity modelling shows significant gains (and some losses) associated with electronic network use. The evidence suggests that some of these are related to the impact which e-procurement has on market prices...

  • Productivity Slowdown and the Role of ICT in Italy

    This paper presents a firm-level analysis of the recent productivity slowdown in Italy. It applies Data Envelopment Analysis (DEA) techniques to firm-level data collected through the annual surveys on the economic accounts of enterprises carried out by the Italian National Statistical Institute (ISTAT). The paper also measures TFP changes that occurred during the years 1996-1999 for 31 industries and breaks these down into technological change (a shift in the production frontier) and changes in relative technical inefficiency (due to modifications in the distance of single firms from the frontier). This decomposition is helpful in interpreting the nature of the observed productivity slowdown. Econometric regressions of firms’ TFP changes for a number of variables, including a component pointing to the ratio of ICT in total capital input, reveal that information and communication technologies appears to have had a positive and significant impact on TFP in all industries during the period examined...

  • IT, Productivity and Growth in Enterprises

    The relationship between information technology (IT), productivity, and growth has been established at the aggregate level. However, the mechanism through which the effect operates at the level of specific businesses remains unclear. Statistical agencies have developed indicators of businesses’ readiness to use IT (e.g. the IT infrastructure, diffusion of specific technologies), and some indicators on actual usage (e.g. purposes, frequency of use). The next phase is developing estimates of the impact of IT use. A recent OECD study addressed this question using aggregate data for OECD countries, and micro data for Germany and the United States. A second phase of the OECD study envisions a series of two- and three-country studies making use of newly available micro data for roughly a dozen countries. This paper outlines one such study, a three-country project addressing the impact of IT use in Denmark, Japan, and the United States. Each country recently collected new data at the level of specific businesses on the use of IT by businesses, and has conducted preliminary analyses of its own data. Each country also has different underlying market and institutional structures. The next phase of this project will be to develop estimates of the impact of IT use based on these new micro data, developing and testing hypotheses that acknowledge differences among the countries in market and institutional structures...

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