ICT and Economic Growth

This chapter examines the diffusion of ICT across OECD countries. It uses official statistics, which may differ substantially from previously published private estimates of ICT diffusion. It shows that ICT networks continue to diffuse throughout the OECD area, even during a period of slower growth. However, large differences in the uptake of technologies persist across the OECD, both between and within OECD countries. Cost differentials and structural differences are among the factors explaining these differences, as is the state of the business environment in different OECD countries. ICT AND ECONOMIC GROWTH: EVIDENCE FROM OECD COUNTRIES, INDUSTRIES AND FIRMS – ISBN 92-64-10128-4 – © OECD 2003 19 1. THE DIFFUSION OF ICT IN OECD ECONOMIES The state of ICT diffusion The economic impact of ICT is closely linked to the extent to which different ICT technologies have diffused across OECD economies. This is partly because ICT is a network technology; the more people and firms that use the network, the more benefits it generates. The diffusion of ICT currently differs considerably between OECD countries, since some countries have invested more or have started earlier to invest in ICT than other countries. A core indicator of ICT diffusion is the share of ICT in investment. Investment in ICT establishes the infrastructure for the use of ICT (the ICT networks) and provides productive equipment and software to businesses. While ICT investment has accelerated in most OECD countries over the past decade, the pace of that investment differs widely. The data show that ICT investment rose from less than 15% of total non-residential investment in the early 1980s, to between 15% and 30% in 2001. In 2001, the share of ICT investment was particularly high in the United States, the United Kingdom, Sweden, the Netherlands, Canada and Australia (Figure 1.1). ICT investment in many European countries was substantially lower than in the United States. The high growth of ICT investment has been fuelled by a rapid decline in the relative prices of computer equipment and the growing scope for the application of ICT. Due to rapid technological progress in the production of key ICT technologies, such as semi-conductors, and strong competitive pressure in their production,1 the prices of key technologies have fallen by between 15 and 30% annually, making investment in ICT attractive to firms. The benefits of lower ICT prices have been felt across the OECD, as both firms investing in these technologies and consumers buying ICT goods and services have benefited from lower prices. The lower costs of ICT are only part of the picture; ICT is also a technology that offers large potential benefits to firm, e.g. in enhancing information flows and productivity. Chapter 2 examines the impact of ICT investment on economic growth in more detail. A second determinant of the economic impacts associated with ICT is the size of the ICT sector, i.e. the sector that produces ICT goods and services. Having an ICT-producing sector can be important, since ICT-production has been characterised by rapid technological progress and has been faced with very strong demand. The sector has therefore grown very fast, and made a large contribution to economic growth, employment and exports. Moreover, having a strong ICT sector may help firms that wish to use ICT, since the close 20 ICT AND ECONOMIC GROWTH: EVIDENCE FROM OECD COUNTRIES, INDUSTRIES AND FIRMS – ISBN 92-64-10128-4 – © OECD 2003 1. THE DIFFUSION OF ICT IN OECD ECONOMIES proximity of producing firms might have advantages when developing ICT applications for specific purposes. In addition, having a strong ICT sector should also help generate the skills and competencies needed to benefit from ICT use. And it could also lead to spin-offs, as in the case of Silicon Valley or in other high technology clusters. Having an ICT sector can thus support growth, although previous OECD work has shown that it is not a prerequisite (OECD, 2001a). In most OECD countries, the ICT sector is relatively small, although it has grown rapidly over the 1990s.2 In 2000, value added in the ICT sector represented between 4% and 17% of business sector value added (Figure 1.2). Moreover, about 6-7% of total business employment in the OECD area can be attributed to ICT production. Trade in ICT has also grown very rapidly, growing from just over 12% of total trade in 1990, to almost 18% in 2000 (OECD, 2002a). Chapter 2 examines the contribution of the ICT-producing sector to economic performance in more detail. A third factor that affects the impact of ICT in different OECD countries is the distribution of ICT across the economy. In contrast to Solow’s famous remark, “you see computers everywhere but in the productivity statistics” Figure 1.1. ICT investment in selected OECD countries As a percentage of non-residential gross fixed capital formation, total economy Note: Estimates of ICT investment are not yet fully standardised across countries, mainly due to differences in the capitalisation of software in different countries. See Ahmad (2003). 1. Or latest available year. Source: OECD, Database on Capital Services. 199