### 3. Acceleration of ICT investment: the key to economic regeneration

As we have seen thus far, since ICT investment has not increased in Japan as much as in other developed countries in the West, its contribution to growth is limited. Sluggish ICT investment is a phenomenon of ICT-using industries and it is possible that its stagnation could decelerate productivity growth in ICT-using industries, leading to a stagnation of the entire economy.

In order, then, to overcome the global economic crisis, it is essential to drastically increase ICT investment mainly in ICT-using industries. We will conduct a simulation of the impact of an acceleration of ICT investment on Japan’s economy using an econometric model over the following pages.

To establish the impact of an acceleration of ICT on Japan’s economic growth in the 2010s, a macro economic model was developed with 63 endogenous variables and 42 exogenous variables comprising five blocks: demand, household income, corporation, finance/banking and prices by explicitly incorporating the effects of ICT investment. Then, we estimated the impact of the activation of corporate investment on medium-term economic growth while checking the balance against other macro variables $ ^{36} $ .

To estimate the impact we first drew up a baseline scenario $ ^{37} $ incorporating the recent global recession that assumes that the global economy, which is rapidly slipping into recession, will recover moderately in fiscal 2010, and then compared this with the estimated results for two other scenarios: an accelerated investment scenario $ ^{38} $ and an accelerated ICT investment scenario $ ^{39} $ . The accelerated investment scenario assumes that corporate investment will start growing across the board in fiscal 2010 because of investment promotion measures. The accelerated ICT investment scenario assumes that the ratio of ICT investment to private—sector corporate capital expenditure will rise because of measures to promote ICT investment. Figure 3-5 shows the results of the simulation of major indices for various growth rates and employment during 2011 and 2020.

Figure 3-6 shows the estimated value of real GDP growth rate for each scenario in the 2010s. While the

Figure 3-5 Major results of the simulation of medium and long-term economic growth

Fiscal Year	2011-15	2016-20	2011-20
Real GDP growth rate (%)	Baseline scenario	1.7	1.5	1.6
Accelerated investment scenario	2.2	2.1	2.2
Accelerated ICT investment scenario	2.3	2.5	2.4
Nominal GDP growth rate (%)	Baseline scenario	1.8	1.8	1.8
Accelerated investment scenario	2.4	2.7	2.5
Accelerated ICT investment scenario	2.5	3	2.7
Potential GDP growth rate (%)	Baseline scenario	0.7	0.7	0.7
Accelerated investment scenario	0.9	1.3	1.1
Accelerated ICT investment scenario	1	2	1.5

(Source) Survey on the Impact of ICT Investment and the Accumulation of ICT-related Capital on the Japanese Economy, Ministry of Internal Affairs and Communications

$ ^{36} $ Jointly conducted by the Ministry of Internal Affairs and Communications and the Japan Center for Economic Research

$ ^{37} $ The 35th Medium-term Economic Forecast (FY2008-2020) released by the Japan Center for Economic Research was used as a baseline scenario. When calculating the estimate, it was assumed that the growth rate of the global economy will not reach 4% even in 2020, that the foreign exchange rate will remain at a high level, and that government spending will continue to restrain public investment. The same applies to the accelerated investment scenario and the accelerated ICT investment scenario.

$ ^{38} $ Compared to the baseline scenario, this assumes that the rate of private-sector corporate capital expenditure will rise at an annual average of about 3 percentage points during the 2010s (annual average rise of ¥3 trillion in monetary terms).

$ ^{39} $ Compared to the baseline scenario, this assumes that the ratio of ICT investment to private-sector corporate capital expenditures will rise at an annual average of about 2 percentage points during the 2010s (annual average ICT investment growth rate of about 6 percentage points and annual average rise of about ¥1.75 trillion in monetary terms).