The IT Industry and the Economic Crisis: Empirical Findings from the USA

Abstract

This study investigates the effect of ICT investments on the economy and vice versa in the context of an economic crisis. The empirical analysis examines US data during the period 1969-2011. Initially, we estimate the effect of GDP growth on the ICT industry by examining: the relation of economic growth to ICT sales; ICT profitability; changes in employment rate. Following, we estimate the effect of ICT investments on the economy. Our study shows that indeed ICT investments are affected by GDP growth, but not during the recession period. We also find that ICT investments lead to significant GDP growth and employment growth. However, when accounting for other, non ICT private investments, the role of ICT investments for GDP growth and employment was found not significant. Our study provides evidence that ICT investment policy is a significant tool to foster GDP growth and employment in the US, but only in the context of overall private investment policy initiatives. The empirical results are interesting since they provide support for the joint use of ICT and other types of investments for the reduction of unemployment and the increase of economic growth in US and possibly for other countries, so tax incentives for ICT investments should require investments in supplementary to ICT areas. Our findings can be useful to policy makers or/and to macro analysts for estimating the effect of tax incentives for national and regional economies.