The economic contribution of the “C” in ICT: Evidence from OECD countries

Numerous studies have documented the contribution of ICT to growth. Less has been done on the contribution of communications technology, the “C” in ICT. We construct an international dataset of fourteen OECD countries and present contributions to growth for each ICT asset (IT hardware, CT equipment and software) using alternative ICT deflators. Using each country’s deflator we find that the contribution of CT capital deepening to productivity growth is lower in the EU than the US. Thus we ask: is that lower contribution due to a lower rate of CT investment or differing sources and methods for measurement of price change? We find that: (a) there are still considerable disparities in measures of ICT price change across countries; (b) in terms of growth-accounting, price harmonisation has a greater impact on the measured contributions of IT hardware and software in the EU relative to the US, than that of CT equipment; over 1996–2013, harmonising investment prices explains just 15% of the gap in the EU CT contribution relative to the US, compared to 25% for IT hardware; (c) over 1996–2013, CT capital deepening accounted for 0.11% pa (6% as a share) of labour productivity growth (LPG) in the US, compared to 0.03% pa (2.5% of LPG) in the EU-13 when using national accounts deflators; and (d) using OECD harmonised deflators, the figure for the EU-13 is raised to 0.04% pa (4% of LPG).     

The Impact Of Computer Prices On International Comparisons Of Labour Productivity

This paper analyses the international comparability of methods used to convert the value added of the office and computing machinery sector (OCM) into constant prices for nine OECD countries. It concludes that the variations which exist in the price indexes are largely due to differences in the methods countries use to capture changes in the quality of an industry's output over time. The paper evaluates the impact of these different OCM price indexes on the growth rate of labour productivity during the 1980s by conducting a sensitivity test where the US OCM index is substituted for each of the individual country indexes. This experiment causes the OCM labour productivity growth rate to change by over a factor of ten for several countries. This result suggests that international comparisons of labour productivity should not be made for the OCM sector using the official data, and that labour productivity comparisons of sectors OCM belongs to—non-electrical machinery and fabricated metal products and machinery—should be conducted cautiously, if at all.     

THE MEASUREMENT OF TERMS OF TRADE EFFECTS

The change in goods and services available in a national economy brought about by the shifting of external price relationships is referred to as the terms of trade effects. This paper reviews the various methods which have been devised since the war to define and quantify such effects on the Gross National Product. The statistical annex shows that, as far as OECD countries are concerned, the differences between the various measures are not significant. Whereas the effects from terms of trade represented, on average, less than one half of one percent of the GNP of OECD countries during the 1960's the percentage has increased substantially since 1973, due most importantly to the increase in the oil price; by 1977 (on a 1970 price basis), it had reached 5 percent of GNP in Japan and up to 6 percent in Italy. On the other hand, the extreme case of Saudi Arabia where various formulas generate effects amounting to between one half and the whole of GNP, indicates that the measurement of terms of trade effects by various methods may give different results.     

Information And Communication Technology And The Measurement Of Volume Output And Final Demand - A Five-Country Study

Information and communication technology (ICT) products have undergone rapid technical change. Where quality improvements occur, they should be reflected in official price and quantity indices, otherwise there is a tendency to over-estimate price movements and under-estimate volume changes of ICT products. Statistical offices deal with this issue but the degree and nature of quality-adjustment of price indices of ICT products varies considerably between OECD countries. The present study simulates measurement effects on key economic variables (real output, private final consumption, government expenditure, investment, exports and imports) and productivity, under the assumption that the price indices of ICT products are fully quality-adjusted. The paper draws on a large selection of empirical studies to identify differences between quality-adjusted and unadjusted price changes and uses detailed information from input-output tables to assess their weights in final demand. Effects on GDP and its components are quantified for five selected OECD countries.     

Schumpeterian and semi‐endogenous productivity growth explanations

This paper examines the nature and sources of productivity growth in South African manufacturing sectors, from an international comparative perspective. On panel data estimations, we find that the evidence tends to support Schumpeterian explanations of productivity growth for a panel of countries including both developed and developing countries, and a panel of South African manufacturing sectors. By contrast, semi‐endogenous productivity growth is supported for a panel of OECD (Organisation for Economic Cooperation and Development) manufacturing sectors. However, we also report evidence that suggests that sectors are not homogeneous. For this reason, time series evidence may be more reliable than panel data. Time series evidence for South Africa suggests that prospects for the sustained productivity growth associated with Schumpeterian innovation processes, is restricted to a narrow set of sectors. For the OECD manufacturing sectors, both semi‐endogenous and Schumpeterian growth finds support. Schumpeterian growth is present for a larger number of sectors than for South Africa, and is most prevalent in the North American economies.     

REAL GROSS DOMESTIC INCOME,RELATIVE PRICES,AND ECONOMIC PERFORMANCE ACROSS THE OECD

This paper uses OECD data to examine changes in labor productivity, real gross domestic product (GDP) and real gross domestic income (GDI), economic aggregates, and relative economic growth over time. Real GDI combines changes in production (real GDP) with a trading gain derived from relative price changes. The paper considers two sources of trading gains: the terms of trade, and the real exchange rate. For OECD countries, the terms of trade is the more important price ratio, making a contribution to real income growth that is, on average, an order of magnitude larger than the real exchange rate. Over long time periods, the most important source of real income growth is changes in production. Over shorter time horizons, however, the trading gain can make noteworthy contributions. Changes in aggregates like real private consumption, or the relative economic performance of nations, are shown to be particularly dependent on the trading gain during the large swings in resource prices that occurred post‐2002.     

ICT and Growth: The Role of Rates of Return and Capital Prices

We revisit the widely discussed contribution of investment in ICT to economic growth, focusing on differences in productivity and quality of ICT across countries and time. In a growth accounting approach, we look at the way rates of return and rates of asset price decline measure these aspects. Conducting a sensitivity analysis with data from the EU KLEMS database for the years 1990–2007, we introduce a constant rate of return and a constant rate of ICT price decline. Both alternative measurements somewhat downplay the role investment played relative to growth in multifactor productivity in the U.K. and the U.S. during 1995–2000. Moreover, we show that more than half of the ICT contribution to labor productivity growth results from changes in capital quality and composition rather than from quantity.     

NEW MEASURES OF PRICES AND PRODUCTIVITY FOR TRADABLE AND NONTRADABLE GOODS*

Empirical work on the division of real output and prices into tradable and nontradable components has not kept pace with theoretical developments. The conventional proxies of prices and productivity by tradable and nontradable sector are examined and found deficient in several important respects. It is demonstrated that an approach that relies on the long–standing data on gross domestic product by industry of origin can overcome some of these deficiencies. These data are used to construct new annual measures of prices and productivity for tradable and nontradable output for 12 industrial countries over the period 1950–73. While far from precise, the new measures are consistent with the following criteria for distinguishing between tradables and nontradables: the degree of foreign trade participation should be higher for tradables than for nontradables; the degree of international commodity arbitrage, as measured by cross-country correlations of price changes, should be higher for tradables than nontradables; and tradables should be closer substitutes than nontradables for traded goods from other countries (imports). Despite the considerable conceptual advantages of the new measures of prices and productivity over the conventional proxies, correlation analysis indicates that the new and old measures usually move together rather closely in our 12 subject countries. The correlations are higher across the alternative relative productivity measures than for the alternative relative price measures.     

Labor productivity growth: disentangling technology and capital accumulation

How much of the convergence in labor productivity that we observe in manufacturing is due to convergence in technology versus convergence in capital-labor ratios? To shed light on this question, we introduce a nonparametric counterfactual decomposition of labor productivity growth into growth of the capital-labor ratio (K/L), technological productivity (TEP) and total factor productivity (TFP). Our nonparametric specification enables us to model technology allowing for heterogeneity across all relevant dimensions (i.e. countries, sectors and time). Using data spanning from the 1960s to the 2000s, covering 42 OECD and non OECD countries across 11 manufacturing sectors, we find TEP and TFP to account for roughly 46 and ?6% of labor productivity growth respectively, on average. While technological growth at the world level is driven primarily by the US and a handful of other OECD countries, we find strong evidence of convergence in both technology and capital-labor ratios. Interestingly, very few of the usual growth determinants are found to enhance the process of technological catching-up.     

Growth, distance to frontier and composition of human capital

We examine the contribution of human capital to economy-wide technological improvements through the two channels of innovation and imitation. We develop a theoretical model showing that skilled labor has a higher growth-enhancing effect closer to the technological frontier under the reasonable assumption that innovation is a relatively more skill-intensive activity than imitation. Also, we provide evidence in favor of this prediction using a panel dataset covering 19 OECD countries between 1960 and 2000 and explain why previous empirical research had found no positive relationship between initial schooling level and subsequent growth in rich countries.     

Culture and labour productivity: An empirical investigation

Culture is considered as one of the most powerful forces that shape human behaviour and thereby economic activity. This paper investigates the effects of culture on labour productivity and examines the cultural traits driving this relationship. Using panel data analysis, empirical evidence is provided covering a sample of 34 OECD countries over a wide period of three decades. Our empirical results suggest a significant positive relationship between the cultural background and labour productivity. The main channels of this positive impact are control and work ethic environment, while obedience has a negative impact on productivity. These findings are robust to a series of robustness checks, including alternative cultural measures, additional control variables, various country samples, and alternative specifications.     

Explaining educational attainment across countries and over time

Consider the following facts. In 1950, the richest countries attained an average of 8 years of schooling whereas the poorest countries 1.3 years, a large 6-fold difference. By 2005, the difference in schooling declined to 2-fold because schooling increased faster in poor than in rich countries. What explains educational attainment differences across countries and their evolution over time? We consider an otherwise standard model of schooling featuring non-homothetic preferences and a labor supply margin to assess the quantitative contribution of productivity and life expectancy in explaining educational attainment. A calibrated version of the model accounts for 90 percent of the difference in schooling levels in 1950 between rich and poor countries and 71 percent of the faster increase in schooling over time in poor relative to rich countries. These results suggest an alternative view of the determinants of low education in developing countries that is based on low productivity.     

The household demand for energy and fuels in OECD countries

This paper estimates the household demand for energy and fuels. The linear expenditure model is estimated using data from eight OECD countries over a period of sixteen years. The basic similarities in household demand for fuels and the differences among OECD countries are discussed. The results indicate that household demand for energy is highly income dependent. With regard to four basic fuels, the income and price elasticities for gasoline and gas are higher than for either coal or oil. The demand patterns are shown to differ significantly among groups of OECD countries. Coal has been gradually replaced by oil as the major household fuel in OECD countries, whereas the demand pattern for gas has changed only a little during the fifties and sixties.     

Determinants of the sacrifice ratio: Evidence from OECD and non-OECD countries

This paper measures sacrifice ratios for all countries in the world over an approximately forty year time period, in addition to exploring the determinants of worldwide sacrifice ratios. We test the most commonly-cited determinants: the speed of disinflation, openness, inflation targeting, central bank independence, and political factors for both OECD and non-OECD countries. We find that the speed of disinflation is the most important determinant of OECD sacrifice ratios, but puzzlingly has no effect on non-OECD nations' disinflation costs. Instead we find evidence that greater central bank independence and more openness are associated with lower non-OECD sacrifice ratios. We also find that the ratio of government debt to GDP – a variable that is not important when it comes to OECD countries – is highly significant for non-OECD economies. Specifically, we find that higher indebtedness is associated with lower sacrifice ratios in non-OECD nations, suggesting that greater levels of debt do not lead to higher expectations of inflation. Furthermore we find evidence that the negative impact of debt on non-OECD sacrifice ratios is being driven by middle income economies.     

Convergence of consumption patterns during macroeconomic transition: A model of demand in Ireland and the OECD

This study uses country-level panel data on consumption in Ireland and seven other OECD countries to examine the evolution of Irish consumption patterns as Ireland underwent rapid macroeconomic growth. Consumption levels obviously increased due to substantially higher incomes, but it is less clear how the shares of different types of goods purchased have changed or whether Ireland's consumption mix has converged with that of other high-income countries. Rankings based on a simple distance measure of consumption similarity suggest that Ireland moved from a “low-income” pattern similar to Portugal or Greece to a “high-income” pattern like that of Canada between 1995 and 2003. Using static and dynamic Almost Ideal Demand System models, we first estimate long- and short-run Irish price and income elasticities for nine categories of commodities between 1976 and 2003. These results provide evidence of substantial habit formation in aggregate consumption. We then estimate a long-run cross-country model covering six aggregate commodity groups between 1975 and 2003. The analysis shows that Ireland's demand parameters remain more similar to those of Greece than to higher-income OECD countries in the sample. Although Ireland has overtaken most other OECD countries in per capita income, it is still converging to a higher-income consumption pattern. We foresee further convergence of Irish expenditure patterns towards a pattern typical of high-income countries.     

Public and private capital productivity in Russia: a non-parametric investigation

The productivity of public capital has been very popular research topic for US and other OECD countries, while studies using data from transitional countries are almost non-existent. In this paper, we analyze the productivity of public and private capital in Russia with parametric and non-parametric regression methods utilizing a unique regional level panel data from 2003 to 2007. More specifically, we assess public capital’s spillover effects, i.e., the productivity of public capital on private output, as well as the productivity of different capital ownership types on total output. We find that public capital has a clear positive effect on private output. However, our estimates and test statistics show that parametric methods are not able to grasp vast non-linearities and heterogeneity present among Russian regions, while the non-parametric approach can capture these important features of the data better. Furthermore, we find that multicollinearity is an important methodological problem which should be accounted for in analysis concerning capital data. Our results also suggest that the impact of public capital in Russia is heterogeneous in the sense that for some regions its contribution to private output is insignificant or even negative while it has a considerable positive role for most regions. Concerning the capital elasticities of total output, we find that public capital is less productive than private capital and roughly as productive as joint private-public capital.     

A cross-country analysis of consumption patterns

This paper uses the system-wide approach to analyse the consumption patterns in 18 OECD countries. The results show that, on average, the OECD per capita consumption increased by 3% per annum and prices increased by about 7% per annum; OECD consumers spend about half of their income on food, housing and transport. It is also shown that, in most OECD countries, food, housing and medical care are necessities and clothing, durables, transport and recreation are luxuries, and that the demand for all goods considered are price inelastic. The controversial hypothesis of Stigler and Becker (1977) that tastes are the same across countries is also tested and it is found that the OECD consumption data do not support their claim.     

Price effects of the euro cash changeover: the role of product market competition

The euro cash changeover that took place in 2002 in 12 countries of the European Economic and Monetary Union was associated with abnormal price increases in most member countries. This paper investigates the influence of product market competition on the size of the changeover-related prices hikes, showing that the price hikes were less prevalent in countries with a higher level of competition. For the countries that are to join the euro area in coming years, this means that fostering competition can help contain changeover-related price increases. This aspect is of particular importance for the most recent and next wave of euro adopters, because of their rather heavy product market regulation as measured by the OECD, which are likely to restrain competition. The results indicate that comprehensive reform efforts can be more beneficial in containing changeover-related price hikes than a selective easing of product market regulation in a subset of areas.     

The impact of scientific research on health care: Evidence from the OECD countries

This paper investigates the impact of scientific research on health care productivity in a set of OECD countries, in the years from 1960 to 2008. To this end, we have matched information collected from the OECD Health Data 2010 with data gathered from the Scopus database on the papers published and their relative citations. Our empirical results suggest that medical research plays an important role in explaining health care productivity, although various countries are characterized by different velocities in assimilating scientific knowledge. Another important result that emerges from our work is that countries characterized by a faster absorption of academic science, such as the US, have on average a milder impact of scientific research on health productivity, compared with countries with slower absorption. As one would expect, we also find that countries absorbing more scientific research also bear higher health costs.Results from this study may support policy makers in designing incentive mechanisms to improve the impact of medical research on the health care system.