Information and Communication Technology and Productivity in Japan: Regional Level Analysis

Abstract

In this paper, we analyze the progressive effects of Information and Communication Technology (ICT) use in terms of regional productivity based on regional economic data. To consider as many factors as possible, we used the Total Factor Productivity (TFP) as the main indicator of productivity. Each Regional TFP index was calculated following the example of Caves-Christensen-Diewert to compare not only differences among prefectures but also time series. The indices showed the progress of ICT use are as follows: the ratio of enterprises in the region using fiber-to-the-home (FTTH) services (enterprise FTTH use), the ratio of enterprises in the region using a network among enterprises (enterprise network use), the regional average of the amount that indicates whether or not enterprises in the region employ a Chief Information Officer (CIO) (CIO establishment), the ratio of enterprises in the region using a telework system (enterprise telework use), the ratio of establishing local public networks in the region (local public network rate), and the ratio of classrooms in the region connected to a LAN (local area network) (LAN classroom rate). First, we estimated TFP employing the panel instrument variable method, using the panel fixed effect and random effect models, due to the possibility of endogeneity. Second, we employed a two-step system GMM to take into consideration endogeneity, autocorrelation and reverse causality of dependant and explanatory variables. The results indicate that increased use of ICT has a positive effect on regional productivity. In addition, these results show that not only enterprise ICT use (enterprise FTTH use, enterprise network use, CIO establishment and enterprise telework use) but also, through enterprise ICT use, regional informationalization (local public network rate, LAN classroom rate) can have a positive effect on the productivity of regional economies in Japan. We conclude that a positive attitude toward an informationalized society can have a positive effect on productivity at the prefectural level.JEL classification: O11, O18, O33, O47, E23