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					ICT, the Internet, and Economic Performance:
  Empirical Evidence and Key Policy Issues


                Donald Siegel
            Professor of Economics
       Rensselaer Polytechnic Institute
Prepared for UNCTAD and UNECE Conference
                    Geneva
               October 20, 2003
                    Outline
 Empirical Studies of the Impact of ICT on
  Economic Performance
 Empirical Studies of the Impact of ICT on
   Wages, Labor Composition (“Skill-Biased”
   Technological Change-SBTC), and the Work
   Environment
 Computers and the Internet as a General
  Purpose Technology (GPT)
 Conclusions and Policy Recommendations
          Investment in ICT and Economic Performance
                     Levels of Aggregation
 Plant Level
 Firm Level
 Industry Level
 National Level
                Indicators of Economic Performance
 Profitability
 Market Share
 Stock Prices (Short and Long-Term Measures)
 Productivity
   Labor Productivity (Partial Productivity)
   Total Factor Productivity
Estimating The Contribution of Computers to Economic Growth
        Augmented Production Function Approach
                     Qi = f (Ki, Li Mi, Ci)
where: Q=output
         K=stock of physical capital
         L=labor input
         C=the stock of computer capital
         i=the unit of analysis (e.g., firm, industry, nation)

                    Two Approaches:
 Parametric-Estimate the Marginal Product or Output
  Elasticity of Computers
 Non-Parametric- “Growth Accounting”-Analyze the
  Sources of Output Growth-(Jorgenson and Stiroh (2000)
Estimating The Contribution of Computers to Economic Growth
                              (cont.)
  Typical Parametric Studies (Brynjolfsson and Hitt (1996)):
Cobb-Douglas Production Function-Constant Returns to Scale:
           Q = A eλt K L(1- )C
where: λ is a disembodied rate of growth parameter and  and  are
        output elasticities of capital and labor, respectively

Key parameter:  the output elasticity of computer capital
                     = (∂Q/ ∂C)(C/Q)

Typical Non-Parametric Studies (Siegel 1997)):
Differentiating the Production Function w.r.t. time (t) and
re-arranging terms leads to:

            PRODGROWTH = λ + ρ(C/Q)
Econometric Studies of the Impact of ICT on Productivity-
                  U.S. Based Studies
   Author(s)       Level of Aggregation              Results
 Dunne, Foster,        Plant-Level         Positive Association Between
Haltiwanger, and                              Computers and Labor
 Troske (2000)                            Productivity, Which Appears to
                                             be Growing Over Time

Brynjolfsson and       Firm-Level         “Excess” Returns to Computer
  Hitt (1996)                                  Capital and Labor


  Siegel and         Industry-Level       Positive Correlation Between
Griliches (1992)                          Investment in Computers and
                                                   TFP Growth
 Jorgenson and       Aggregate-Level      Growth Contribution of ICT
  Stiroh (2000)                           Increased Substantially in the
                                                 mid-late 1990s
Econometric Studies of the Impact of ICT on Productivity-Non-US Studies
   Author(s)       Level of Aggregation               Results
Licht and Moch         Firm-Level            Terminals Have a Positive
(1999)-Germany                               Impact on Productivity in
                                           Goods Industries, But Not in
                                             Services. Strong Positive
                                          Relationship Between PCs and
                                          Productivity in Manufacturing
                                                    and Services
  Gera, Gu, and       Industry-Level       Positive Correlation Between
   Lee (1999)-                            Investment in Computers and
    Canada                                  Labor Productivity Growth
 Greenan and           Firm-Level         Impact of Computers is Positive
Mairesse (1996)-                           and at Least as Large as For
    France                                    Other Types of Capital.
                                          Returns Appear to be Higher In
                                                 Services Than in
                                                  Manufacturing
        Econometric Studies of the Impact of ICT on
             Productivity-”External” Effects

 Author(s)         Level of                Results
                 Aggregation
Morrison and    Industry-Level    “External” Investments in
Siegel (1997)                      Computers by Related
                                  Industries (Suppliers and
                                    Customers) Enhance
                                   Productivity in a Given
                                          Industry
       Key Stylized Facts Regarding ICT and SBTC
Strong Evidence in Favor of SBTC  Positive
 Correlation Between Some Proxy for Technological
 Change and Shifts in Wages and Workforce
 Composition in Favor of Highly Educated Workers
Wage Premium of Slightly Less Than 20% in Most
  OECD Countries
Investment in ICT Explains Approximately 33%-50%
  of the Increase in Returns to Education
In Some Countries, the Demand for Computer-Literate
  Workers is Increasing More Rapidly Than Supply
The Gap in Earnings Between Workers Who Use a
  Computer and Those That Do Not Appears to Have
  Widened
       Key Stylized Facts Regarding ICT and SBTC-
              International Evidence (cont.)
           Berman, Bound, and Machin (1998):
 Strong Evidence of Pervasive SBTC in OECD Countries-
 Patterns Are Quite Similar Across Countries

                Berman and Machin (2000):
Comparison of SBTC in Developed and Developing
  Countries
Analysis of “Technology Transfer” from Developed
 (OECD) to Developing Countries
Evidence of “Transfer” of Skill-Biased Technologies from
 High Income to Middle Income Countries, But Not From
 High Income to Low Income Countries
Less Evidence of SBTC in Developing Countries
      Evidence on SBTC in Developing Countries
           (From Country-Specific Studies)
Korea: Workers in Industries With Rapid
 Technological Change Are Paid More
Mexico, Taiwan, Colombia, Malaysia: Wages and
 Training Tend to Be Higher in Industries
 Experiencing Rapid Technological Change
Singapore: The Rise of the “Knowledge
 Economy” Appears to Explain The Increase in
 the Returns to Education
Vietnam: If Work Requires Computer Skills,
 Wages Are 10-14% Higher
           ICT and Organization Change
          Siegel (1999)-Firm-Level Study
 Implementation of new ICT Associated With
  Organizational Change
 Implementation of new ICT Associated With
   Increases in Training and Skill Upgrading
 Implementation of new ICT Associated With
  Enhanced Employee Empowerment
 Major Obstacles to Additional Investments in New
  Technologies:
   High Cost of Customizing Software to Fit Company
     Needs
   Difficulties in Quantifying Benefits
   Some Firms Also Report Shortages of Skilled Workers
                ICT and Organization Change
                 Brynjolfsson and Hitt (2000)
ICT Reduces the Cost of Coordination, Communication,
 and Information Processing
ICT is Associated with a “Cluster” of Complementary
 Organizational Changes/Practices
   Transition from mass production to “flexible”
     manufacturing technologies
   Changing Interaction With Suppliers
   Transforming the Firm
     Replacing Back-Office Jobs and Increasing the
         Importance of Front-office Skills and Leadership
   Changing Interaction With Suppliers
   Decentralized Decision Making and Enhanced
    Communication
 Computers/Internet as a General Purpose Technology (GPT)

GPTs-Technologies That Cause Dramatic Economic Changes by
Stimulating New Applications and Industries and Rejuvenating
Existing Sectors  Strengthens the Rationale for Government
Intervention

Examples of GPTs: Steam Engine, Electric Dynamo,
                  Lasers, Computers

Computers/Internet as a GPT
                  Creation of New Industries:
 Internet Service Providers
 Network Communications Equipment
 Consulting Services
         Conclusions and Policy Recommendations
 ICT Appears to Be Generating High Social Returns
  (Although Not Quite As High As Those Associated With
  R&D, But Still Quite High)-Not Showing Up As Much In
  Aggregate Statistics Because Productivity Gains Are In
  Services
 ICT Has Transformed the Workplace in Many Industries
  and Increased the Returns to Education in
  Developed and Developing Countries (To a Lesser Extent)
 Developing Countries Appear to Be Falling Further
  Behind in the Digital Divide, as Well as in the “Learning"
  Divide
     Conclusions and Policy Recommendations (cont.)
Increased Demand for ICT Workers May Not be Met in
 Many Developing Countries (Role of Outsourcing)
Important For Policymakers in Developing Countries To
  Invest in Infrastructure That Complements/Supports Use
  of ICT (Physical and Educational):
   Low-Cost, High-Bandwith Internet Connections
   Internet Security
   Ensure That Educational System Addresses Skill
      Deficiencies
Important For Developing Countries To Foster
 Institutions That Complement/Support Use of ICT
     Conclusions and Policy Recommendations (cont.)
Developed Countries-Public-Private Partnerships Have
 Been Useful in Alleviating Innovation Market Failures

Public-Private Partnerships in Developing Countries Can Be
Useful for:
Better Access to Financial Capital
Enhancement of Human Capital
Stimulating the Development and Extension of Networks
  That Increase the Returns to ICT and E-Business

				
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