Measuring ICT externalities and their contribution to productivity: A bilateral trade based approach

Abstract

This paper studies the contribution of information and communication technology (ICT) to productivity both directly – and indirectly, via externalities that originate in other sectors or countries.Building upon the theoretical model proposed by Basu et al. (2003), we include several features to account for two important aspects of ICT: complementarity with other intangibles, and externalities among different sectors. We propose several measures of externalities, distinguishing between foreign and domestic spillovers, and inter- and intra-industry spillovers. We focus on domestic spillovers, and compare a standard measure with a measure computed by weighting the ICT capital of other industries with bilateral sectoral trade.We find that results are affected by the way spillovers are measured. Evidence in favour of domestic externalities is only found when using the second measure, meaning that spillover effects only exist among industries that are connected via international trade. Foreign spillover effects are not detected.