economic and social benefits of ict - wik.org · bart van ark, senior vice president and chief...

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6 June 2011

Economic and Social Benefits of ICTPresentation for Conference on “Fibre networks: Demand and analyses of costs and benefits”

Bart van Ark, Senior Vice President and Chief EconomistProfessor at Faculty of Economics, University of Groningen


Another General Purpose Technology, but where are we in the technology cycle are we exactly …?


Can ICT definitively be qualified as the next General Purpose Technology?

"General Purpose Technologies are characterized by pervasiveness (they are

used as inputs by many downstream sectors), inherent potential for technical

improvements, and innovational complementarities', meaning that the

productivity of R&D in downstream sectors increases as a consequence of

innovation in the GPT. Thus, as GPTs improve they spread throughout the

economy, bringing about generalized productivity gains.” (Bresnahan, 1996)

Why does it matter?

1) What are the effects of GPT, in output and productivity terms, and what goes

beyond measured output (e.g. consumer surplus)?

2) Who are the winners and losers to GPT in terms of economic and social

returns?

3) Where should government (not) intervene?


The EU KLEMS project (2004-2008) was funded by the European Commission, Research Directorate General as part of the 6th Framework Programme, Priority 8, "Policy Support and Anticipating Scientific and Technological Needs".


Authors from:

• The Conference Board• Northwestern University• Universidad Catolica de Chile• London School of Economics• Dialogic Innovation and Interaction• University of Groningen• Columbia Business School• University of Michigan• University of Rochester

Funded by The TelefonicaFoundation

, Executive Editor


How does ICT impact on economic and social performance?

Supply side

Rapid technological change in ICT producing industries leading to productivity growth

The effect of capital intensification upon aggregate and sectoral labor productivity growth

ICT spillover effects from total factor productivity (TFP) gain in industries that make intensive use of ICT

Demand side

Demand for ICT is key driver of consumer expenditure, B2B and B2C

Creates new demand patterns that shape social and cultural interactions, which in turn shapes the next step in technology

Distribution of the gains

Gains to consumers determined by consumer surplus

Gains to producers determined by producer revenue

Distribution between consumers and between producers


The supply side impact of ICT on economic growth

2: investment channel

3: spillover

channel ??

1: technology channel

Log GDP

Time© Erik Bartelsman/Jeroen Hinloopen


ICT and multifactor productivity are amongs key sources of growth differences between countries

Source: EU KLEMS, November 2009

% growth rate of GDP

1995-2007, market economy


Slowdown in productivity growth signals partly recession, but also stalling of productivity effects from technology

Source: The Conference Board Total Economy Database, January 2011 (http://www.conference-board.org/data/economydatabase/)

Trend in multi factor productivity growth (using Hodrick-Prescott filter)

?


Emerging economies are gradually gaining larger share in ICT investment

Note: Investment in ICT refers to telecommunication equipment, IT hardware and software. The growth rates refer to average annual growth rates for each sub-period, and represent averages for 26 advanced countries in North America, Europe and Asia-Pacific (including Japan, Korea, Taiwan, Singapore, Hong Kong, Australia, and New Zealand) and 41 countries representing emerging markets around the world, including developing Asia, Central and Eastern Europe, Latin America, and the Middle East.Source: The Conference Board Total Economy Database, January 2011 (http://www.conference-board.org/data/economydatabase/)


Emerging economies are rapidly catching up through faster growth

Source: The Conference Board Total Economy Database, January 2011 (http://www.conference-board.org/data/economydatabase/)


ICT Production and Services dominate contribution to labour productivity in US - Manufacturing dominates in Europe

Source: EU KLEMS, November 2009

% growth rate of labour productiviiy

1995-2007, market economy


How comprehensively does technology diffuse across the economy in terms of related productivity gains?

Source: Harberger, 1998

Yeast pattern of diffusion: the technology has spread very

widely in applications

Mushroom pattern of diffusion: only some industries pick up on

the new technology

Cumulative share of industries in GDP ranked from highest to lowest contributions to growth


The productivity growth gap between EU and U.S. is broad-based, showing a more yeast-like pattern in U.S.

Source: Timmer, Inklaar, O’Mahony and van Ark, 2010; EU KLEMS, March 2008

EU-15 and US “Harberger” diffusion diagram, 1995-2005% growth rate of multifactor

productivity (MFP)

Cumulative share of industries in GDP ranked from highest to lowest contributions to MFP growth


Rapid acceleration in broadband usage in the United States

Source: National Telecommunications Information Adminisration 2010, in Greenstein and McDevitt, in Van Ark, ed., The Linked World, The Conference Board/Telefonica Foundation


Consumer surplus from switch from dial-up to broadband between 10 and 40 percent of total broadband bonus

Consumer surplus as % of overall broad bonus (excl. adjustment for lost dial-up revenue, 2009

Note: Broadband Bonus: consumer surplus and net gain in producer revenue (broadband revenue minus lost dial-up revenue)Source: Greenstein and McDevitt, in Van Ark, ed., The Linked World, The Conference Board/Telefonica Foundation


Social and technical aspects of new technologies reinforce each other

Source: Van Ark, ed., The Linked World, The Conference Board/Telefonica Foundation


Off-line social exclusion relates to digital exclusion

Source: Helsper, in Van Ark, ed., The Linked World, The Conference Board/Telefonica Foundation


Reasons for disengagement from the internet depend on level of development

Source: Helsper, in Van Ark, ed., The Linked World, The Conference Board/Telefonica Foundation


• ICT, and especially the internet, has proven to be a genuine general purpose technology

• It’s not just the technology. It’s the infrastructure and wide applications that generate growth.

• Technology changes from connectivity and applications to providing platform for new services

• The economic impact is through investment and productivity

• The gains create substantial consumer surplus, but the distribution of the gains is only gradually becoming more equal

• Social and cultural impacts go beyond traditional divides (income) to more complex evolution (generations, societal groups)

• Education is key to build social capital to facilitate societal and cultural transition

• Government policy plays a critical role in enhancing performance of the ICT sector

Where are we now?


• The development of appropriate competition models is a critical driver of sector performance

• Proactive and continuous government planning is a key lever to drive performance improvement

• Planning needs to be complemented with disciplined follow-up

• Leadership of the executive branch is proving to be a determining role

• Emphasis on demand side policies has been critical in stimulating ICT adoption

• Link Telecom sector to IT services sector development

• Clarity and certainty in the definition of a regulatory framework and policy set are important

ICT Policy Framework

economic and social benefits of ict - wik.org · bart van ark, senior vice president and chief...

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