Europe - ICT and productivity

Accounting for the Impact of Information and Communication Technologies on Total Factor Productivity: Towards an Endogenous Growth Approach

Theo Dunnewijk, Huub Meijers, and Adriaan van Zon. Editor: Salvador Barrios
EUR Number: 22909 EN

Economists now broadly agree on the fact that technical progress and technology dissemination constitute the ultimate source of sustained economic growth. In particular, economic analysis in the context of the so-called endogenous-growth (often termed "new growth theories") approach has shifted towards elements such as human capital (education and training) and R&D which could be both used to increase knowledge accumulation and technical progress. This paper provides a review of the literature on the impact of ICT on Economic Growth and Productivity and provides elements of discussion for extending the neoclassical growth framework to incorporate elements of the endogenous growth theories in order to consider the impact of ICT diffusion on growth and productivity. This study provides an overview of the traditional growth accounting framework rooted on Sollow's contributions and its extension considering the cases where situations of under-investment in growth-promoting items such as R&D, can be detected. Similarly to the R&D case, the resulting aggregate use of ICT maybe too low for pushing productivity up in a given economy given that private agents may under-invest in ICT if the private economic returns from these investments are too low. The overall macroeconomic outcome may therefore result in a situation where the growth potential of ICT investment is far from being fully realised. This outcome in particular would allow explaining why still many EU countries are lagging behind in terms of ICT investment and ICT impact on economic growth, in particular compared to the US. This present study provides a number of theoretical caveats to understand the main issues at stake.