ICT and Productivity Growth Within Value Chains

Chuan Liu,Marianne Saam

doi:10.1111/roiw.12533

Abstract

Growth accounting has documented an important contribution of information and communication technology (ICT) capital deepening to sectoral labor productivity growth during the late 1990s, especially for the knowledge‐intensive services that are used to an important extent as intermediate inputs to other sectors. Our approach traces labor productivity growth not within sectors but within value chains of final products. A main result is that more than half of the productivity gains related to ICT capital deepening for manufactured goods are contributed by upstream industries, mostly by knowledge‐intensive services. For a number of countries, similar magnitudes of upstream contributions of ICT capital deepening are observed for ICT products and for services that are not knowledge‐intensive. The major part of these contributions is domestic rather than foreign. Moreover, the high sectoral growth in total factor productivity (TFP) in the ICT sector contributes only moderately to effective TFP growth in non‐ICT value chains.

Highlights

The diffusion of digital technologies has transformed the economy and increased productivity, which raises incomes and product quality and lowers product prices
Considering the development in the years after 2000 in the US, Oliner et al (2008) show that information and communication technologies (ICT) capital deepening continues to contribute to labor productivity growth but that its importance is decreasing relative to total factor productivity (TFP) growth in ICT-intensive industries
Orders of magnitude and country differences in the contribution of ICT capital deepening to labor productivity growth in value chains are in line with those found in previous sector-level studies

Summary

Introduction

The diffusion of digital technologies has transformed the economy and increased productivity, which raises incomes and product quality and lowers product prices. To better understand the potential of further digital transformation ahead, it is useful to turn back to the period of the Internet boom and to deepen our understanding of the productivity growth at that time. While the Solow paradox, according to which the productivity effects of information and communication technologies (ICT) were not visible in statistics, remains a popular saying, the research undertaken since Solow’s observation in the late 1980s has gained solid evidence that many sectors and countries experienced visible, though not always dramatic, productivity growth related to the diffusion of ICT. Seminar participants at the RGS Doctoral Conference 2019 provided helpful comments.

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Conclusion