Abstract
ABSTRACT Is the world on the cusp of a fourth industrial revolution driven by technological developments in ICT including artificial intelligence and the Internet of Things (IoT)? This paper focuses on IoT and how it might affect economic growth. We attempt to gauge the potential impact of IoT using: (1) regressions based on current IoT data; and (2) longer run estimates of growth accounting parameters based on those observed in a previous wave of the ICT-revolution. We find that: (a) according to definitions in the literature, IoT is an innovational complementarity to ICT; (b) early data already suggest an economically and statistically significant correlation between IoT connections and TFP growth, implying that an increase of 10 percentage points in the growth of IoT connections per inhabitant is associated with a 0.23 percentage points increase in TFP growth; (c) longer run predictions of the IoT contribution based on a growth-accounting framework suggest a potential global annual average contribution to growth of 0.99% per annum (pa) in 2018–2030, approximately $849 billion pa of world GDP in 2018 prices.
Highlights
Many analysts believe that the world is on the threshold of a new era of Information and Communication Technology (ICT)-enabled innovation
First, Internet of Things’ (IoT) can be viewed as an innovational complementarity to the ICT-revolution, just like electric motors during electrification in the early twentieth century
Our results suggest that an increase of 10 percentage points in the growth of IoT connections per inhabitant is associated with a 0.23 percentage points2 increase in total factor productivity (TFP) growth
Summary
Many analysts believe that the world is on the threshold of a new era of ICT-enabled innovation. Based on data for 82 countries, we find a strong association between the change in IoT connections per inhabitant and TFP growth, suggesting large effects in the early stages of diffusion. We note that this is consistent with Waverman, Meschi, and Fuss (2005). Using estimates of current IoT investment and the investment profile observed during the previous wave of the ICT-revolution, based on our preferred benchmark our projection of the IoT contribution is far less than the predictions reported in Manyika et al (2015) It is substantial at around 0.99% pa of growth, equivalent to $849 billion of global GDP.. Our results are quite sensitive to the assumptions made about the initial starting values of IoT investment
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