Contribution of ICT to Economic Growth in Asia

ITS 15th Biennial ConferenceBerlin, Germany, September 7, 2004

Takahito Kanamori (Waseda University)Masahiro Fujiwara (KDDI Research Institute)

Hitoshi Mitomo (Waseda University)

Topics of the Presentation Background Framework Data Results and Comments Conclusions

Background Many studies have been conducted to

quantify the sources of the strong productivity performance of the U.S. economy in the late 1990’s

The results of these studies reported that ICT played a key role in raising productivity of the U.S. economy in the late 1990’s

The impact of ICT at the macroeconomic level was also quantified in Japan and Europe, and the results revealed that the positive effects of ICT to economic growth was not confined to the U.S.

Results from Past Studies The contribution of ICT to economic

growth reported in selected past studies:

Year Australia Canada Finland France Germany Italy J apan U.K. U.S.Contribution 90- 95 0.48 0.3 0.24 0.18 0.3 0.21 0.31 0.27 0.43

of ICT 95- 99 0.66 0.51 0.62 0.33 0.35 0.36 0.38 0.47 0.88Real Output 90- 95 3.37 1.79 - 0.7 0.97 2.22 1.44 1.33 2.12 2.64

Growth 95- 99 4.72 4.09 5.62 2.6 1.73 1.93 1.1 3.48 4.43

United States 1990- 95 1995- 98Computer 0.187 0.458Software 0.154 0.193Communications 0.058 0.104Output Growth 2.74 4.729

Source: Jorgenson and Stiroh [6]

Source: Coleccia and Schreyer [1]

Motivation Many Asian economies experienced rapid

economic growth during the 1990’s Has ICT contributed to economic growth

in Asia during this period? How big of a role did ICT play in Asia

during this period of economic expansion? The present study is a first step in

understanding the effects of ICT in Asia, focusing on the role of communications equipment

Overview of the Research Six countries and regions were chosen for

the quantitative analysis: Japan, Korea, Taiwan, Singapore, China, Thailand

The impact of communications capital services on economic growth was quantified for each of the selected countries, using a similar approach to past studies

The size of the impact of communications equipment-use in Asia was compared

Goals Quantify the macroeconomic impact of

communications equipment on economic growth in Asia

Compare the contribution of communications capital services in Asia

Find out whether the contribution of communications capital services has increased its contribution to economic growth in the late 1990’s

Framework The aggregate production function is defined a

s follows:

where t is time, Yt is real output, Km,t is communication capital services, KK,t is all other capital services, Lt is labor, and At is the Hicks-neutral augmentation term of the aggregate input.

ttKtmtt LKKFAY ,, ,,

Growth Accounting Under the standard neoclassical assum

ptions of competitive markets and input exhaustion, the standard growth accounting equation is obtained:

where the si’s are the average nominal output shares of input i

AdKdsKdsKdsYd LLKKmm lnlnlnlnln

User Cost of Capital The user cost formula is applied to approximat

e the rental price of input i as :

where it is the nominal rate of return to capital at time t,δi is the geometric depreciation rate of capital i, pi,t is the price of capital i, and is the rate of change of capital i at time t

The rate of return, it, was assumed to be 4%

titiitti ppiu ,,, )ˆ(

tip ,ˆ

Empirical Issues Internationally harmonized indexes were

constructed to adjust for the differences in the price indexes used in different countries using the U.S. as the benchmark

Capital stock estimates were obtained using the perpetual inventory method, and investment data were obtained from “Fixed Capital Formation” in the Input-Output Tables

Data Communications equipment investment

data is the primary data used Investment data for communications

equipment were obtained from the Input-Output Tables

The benchmark U.S. price indexes were obtained from Jorgenson [4]

Output data were obtained from the Penn World Table Version 6.1

Data - Japan Investment data were obtained for

1978-1994, 1997, 1998, and 2000 Since the basic I-O Table was not

possible to obtain for 2000, the ratio of “television and radio” and “video equipment” have been assumed to be the same as in 1998

Data - Korea Medium-sized Input-Output Tables were

obtained for: 1978, 1980, 1983, 1985, 1986, 1987, 1988, 1990, 1993, 1995, 1998, 2000

The ratio of “televisions” and “radios” have been assumed to be the same as in 1990, during 1990-1993

The ratio of “communications equipment” have been assumed to evolve linearly from 1985-1990, using the benchmark ratios obtained in the Korea-Japan International Input-Output Table in 1985 and 1990

Data - Taiwan Input-Output Tables were obtained for

1981, 1984, 1986, 1989, 1991, 1994, 1996, and 1999

The ratio of communications equipment have been assumed to evolve linearly in the same way as in Korea, using the ratios obtained in the 1985 and 1990 Korea-Japan International Input-Output Table

Data - Singapore Basic Input-Output Tables were

obtained for 1972, 1975, 1978, 1983, 1988, 1990, and 1995

The final I-O Table that is currently published is the 1995 Table The contribution of ICT in the late

1990’s can not be quantified

Data - China Input-Output Tables were obtained for

1985, 1987, 1992, and 1997 The time span of the obtained investment

series is shorter than the other countries Capital stock estimates are probably affected by

the length of the investment series The classification scheme of the I-O Table is

broader than most other countries

Data - Thailand Input-Output Tables from 1975,

1980, 1985, 1990, 1995, and 1998 were obtained

The classification scheme of the I-O Table in Thailand is not as disaggregate as the classification in other countries being assessed The results for Thailand must be

interpreted keeping this caveat in mind

Results The Contribution of

Communications Capital Services to Growth in Asia:

*The year analyzed for China is 1995-1998.** The year analyzed for Thailand is 1995-1999.

J apan Korea Taiwan Singapore China Thailand

Communications 1990- 1995 0.08 0.06 0.04 0.15 0.05 0.161995- 2000 0.15 0.10 0.07 - 0.01* 0.10**

GDP Growth 1990- 1995 1.40 7.09 6.89 7.43 10.70 5.771995- 2000 1.42 4.35 5.58 - 5.77* - 0.77**

Graph of the Contribution of Communications Equipment

Contribution of Communications Capital Services

0.00

0.02

0.04

0.06

0.08

0.10

0.12

0.14

0.16

0.18

J apan Korea Taiwan Singapore China Thailand

Country

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Early 1990'sLate 1990's

General Comments on the Results During the 1990’s,

communications equipment made a positive impact in all the Asian economies being assessed

The size of the contribution of was similar in most countries and regions in Asia during the 1990’s

Comparison: Early and Late 1990’s The contribution of communications capital

services increased in Japan, Korea, and Taiwan during the late 1990’s The results reflect the rapid investment in

communications equipment in these economies The role of communications equipment are

becoming increasingly important The contribution dropped in China and

Thailand This may be due to external factors

For example, in Thailand, the results may have been affected by the Asian financial crisis in the late 1990’s

Conclusions The impact of ICT on economic growth was

quantified in Asia, focusing on the role of communications equipment

Results reveal that communications equipment made a positive impact in all the Asian economies during the 1990’s, and the size of the impact was similar in most Asian economies

The study provides a first step in understanding the effects of ICT-use in Asia

Future Work Improvement of communications

equipment price indexes A fully quality-adjusted index is needed

to accurately quantify the contribution Quantifying the contribution other

ICT capital services in the growth account

Measuring the contribution of ICT production as well as ICT-use

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Survey of Current Business, pp. 7-23, 1997. [3] A. Heston, R. Summers, and B. Aten, Penn World Table Version 6.1, Center for International Comparison

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