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Long term implications of the ICT revolution: applying the lessons of growth theory and growth accounting

Oulton, Nicholas (2010) Long term implications of the ICT revolution: applying the lessons of growth theory and growth accounting. Centre for Economic Performance discussion papers, CEPDP1027. London School of Economics and Political Science, London, UK.

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Abstract

How big a boost to long run growth can countries expect from the ICT revolution? I use the results of growth accounting and the insights from a two-sector growth model to answer this question. The use of a two-sector rather than a one-sector model is required because of the very rapid rate at which the prices of ICT products have fallen in the past and are expected to fall in the future. According to the two-sector model, the main boost to growth comes from ICT use, not ICT production. Even a country which has zero ICT production can benefit via improving terms of trade. In the long run, the falling relative price of ICT products boosts the growth of GDP and consumption by inducing faster accumulation of ICT capital. I quantify this effect on the long run growth rate of 15 European and 4 non-European countries, using data from the EU KLEMS database. The ICT intensity of production (the ICT income share) is much lower in many European countries than it is in the United States or Sweden. Nevertheless the contribution to the long run growth of labour productivity stemming from even the current levels of ICT intensity is substantial: about half a percent per annum on average in the countries studied here. Eventually, the ICT revolution may diffuse more widely so ICT intensity may reach at least the same level as currently in the U.S. or Sweden, which would add a further 0.2 percentage points per annum to long run growth.

Item Type: Monograph (Discussion Paper)
Official URL: http://cep.lse.ac.uk/_new/publications/abstract.as...
Additional Information: © 2010 The Author
Library of Congress subject classification: H Social Sciences > HB Economic Theory
Journal of Economic Literature Classification System: E - Macroeconomics and Monetary Economics > E2 - Consumption, Saving, Production, Employment, and Investment > E23 - Production
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O41 - One, Two, and Multisector Growth Models
O - Economic Development, Technological Change, and Growth > O4 - Economic Growth and Aggregate Productivity > O47 - Measurement of Economic Growth; Aggregate Productivity; Cross-Country Output (Income) Convergence
Sets: Research centres and groups > Centre for Economic Performance (CEP)
Rights: http://www.lse.ac.uk/library/usingTheLibrary/academicSupport/OA/depositYourResearch.aspx
Identification Number: CEPDP1027
Date Deposited: 21 Mar 2013 10:54
URL: http://eprints.lse.ac.uk/49303/

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