The modern drivers of productivity

Abstract

This paper studies the role of technology spillovers in productivity growth of OECD countries looking at investments in Information and Communication Technology (ICT) and Research & Development (R&D). We find that both forms of technologically advanced capital (ICT and R&D) influence total factor productivity (TFP) over the long run: the former effect derives from externalities related to the use of ICT capital, the latter from knowledge spillovers generated by research performed to produce ICT goods. These findings are robust to controlling for import penetration of ICT products and the underlying R&D. Our evidence suggests that: (i) investing in ICT capital delivers significant productivity benefits, (ii) domestic production of ICT goods is source of important knowledge spillovers, and that (iii) in terms of TFP gains a low degree of industry specialization in information technology cannot be compensated by a country's trade openness, i.e., by importing ICT goods. These results help to explain trends in high-tech specialization and international trade.