SEIZING THE BENEFITS OF ICT AN INTERNATIONAL COMPARISON

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• SEIZING THE BENEFITS OF ICT AN INTERNATIONAL
  COMPARISON
• CEBR seminar, Copenhagen, 24 May
• DIRK PILAT
• ECONOMIC ANALYSIS AND STATISTICS DIVISION
• ORGANISATION FOR ECONOMIC CO-OPERATION AND
  DEVELOPMENT

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Context of recent OECD work on ICT

• Follows up of 2001 Growth Study The New
  Economy Beyond the Hype, and on specific
  requests for further analysis of ICT.
• Underpins 2003 report to OECD Ministerial
  meeting.
• Pulls together empirical evidence on the role of
  ICT
• Recent business surveys on ICT and e-commerce.
• Macro-economic data on ICT investment.
• Sectoral evidence - on the basis of OECDs STAN
  database.
• Firm-level evidence, based on work with
  statistical offices in 13 OECD countries.
• Draws policy conclusions from that work is ICT
  still important for growth?

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Issues addressed in this work

• What is the state of ICT diffusion in the OECD?
• If ICT is an important driver of productivity and
  business performance, why are there large
  differences in the uptake of ICT across
  countries?
• What are the impacts of ICT on productivity and
  business performance?
• Which factors influence the returns that firms
  can extract from their investment in ICT?
• How can policy influence these factors?

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Finding 1. ICT investment has been uneven
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ICT investment in the US is recoveringContributio
ns to change in real private fixed investment
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Access to the Internet is high, use still low
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but ICT and e-commerce continue to spread
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Private data contributed to the hype Internet
commerce still only 0.3-2 of total sales and
slower growth than projected

Official data
Private source in December 1999
8
7
2003
2003
6
2003
5
2002
4
2002
3
2002
2001
2001
2
2001
2000
2000
2000
1
0
Denmark
Finland
United Kingdom
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Finding 2 ICT investment and diffusion mainly
differ because of lack of demand

• Demand has been held back by a business
  environment that was not sufficiently geared
  towards effective use of ICT e.g. regulatory
  barriers, lack of skills, difficulty to change
  organisational set-ups, lack of innovation, etc.
• Competition has not been equally strong in all
  countries costs of ICT and communications
  differ, as do pressures to improve performance.
• Demand has been held back by lack of security
  trust.
• Structural factors also matter ICT is not
  suited to all markets, sectors, or business
  models.

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Countries with strict employment protection
legislation and product market regulation have
invested less in ICT
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Countries with strong innovation in applications
and software have invested more in ICT
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Countries with an abundance of high-skilled
workers have invested more in ICT
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Businesses also face several barriers to
E-commerce(percentage of businesses using a
computer, 10 or more employees)
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Including those related to existing market
channels ( of businesses using a computer, 10 or
more employees)
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Finding 3 Much better evidence on the economic
impacts of ICT at three levels of analysis

• Through macro-economic evidence on the role of
  ICT investment in capital deepening.
• Through sectoral analysis showing the
  contribution of ICT-producing sectors and
  ICT-using services to productivity growth.
• And through detailed firm-level analysis that has
  demonstrated the wide-ranging impacts of ICT in
  the economy, even in sectors where sectoral data
  suggested that little was happening this result
  is thanks to work in 13 OECD countries.

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The contribution of ICT investment to GDP is
substantial in some countries
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ICT manufacturing is important in some OECD
countries
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ICT-using services show more rapid productivity
growth in a few OECD countries
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And countries with a rapid increase in investment
in ICT have had more rapid MFP growth
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Firm-level work on ICT and performance

• Co-operation with researchers and statistical
  offices in 13 OECD countries.
• Countries used their own data, including
  production surveys, ICT use surveys, e-commerce
  surveys, innovation surveys, etc.
• Large variety of methods, including estimates of
  productivity regressions, production functions,
  etc.
• Some cross-country studies, but only covering
  pairs of countries.
• Work is still continuing in several countries.

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Firm-level studies show that ICT use can help
improve productivity and business performance.

• ICT helps firms compete and gain market share.
• Networking technologies are key - they allow
  integration of activities through the value chain
• The impacts of ICT can also be found in the
  service sector when examining micro-data, which
  is important since most investment in ICT is in
  services.
• ICT is closely linked to process innovations
  firms that have already innovated are better able
  to achieve returns from their ICT investment.
• Successful firms are most likely to get returns
  from ICT.

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What about Denmark? ICT-related industries play a
role in aggregate labour productivity growth..
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and ICT capital also accounts for part of growth.
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Empirical conclusions

• ICT remains important for growth
• Productivity growth has held up (US Canada).
• Networks have spread widely.
• Technological progress continues.
• We now have much harder evidence on the impacts
  of ICT on productivity and business performance
  than 2 years ago this helps underpin
  evidence-based policies.
• But the evidence also shows that ICT is no
  panacea.
• Firm-level studies provide a rich source of new
  knowledge, and point to key factors that are
  relevant to policy action, e.g. organisational
  change, skills, management, innovation and
  entrepreneurship.

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Some measurement problems remain

• Software investment is not yet fully picked up in
  national accounts OECD/Eurostat efforts to
  improve methods.
• Deflators for ICT production differ considerably.
• Measurement of services output differs
  considerably across countries some work is
  underway to improve measurement in financial
  services and insurance.
• Cross-country firm-level studies are still
  scarce, although much work is underway. OECD is
  trying to act as forum for exchange of best
  practices.

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Finding 4. ICT is no panacea and depends on many
other factors that require policy action

• Results from ICT are linked to investment in
  skills.
• Organisational change is needed to make ICT work.
  
• The impact of ICT depends on accompanying
  innovations (co-invention).
• Management - firms that are already productive
  and innovative often get the best returns.
• Scope for experimentation ease of entry and
  exit allow firms to test markets and business
  models.
• Competition in ICT markets and throughout the
  economy.
• Security and trust in ICT.

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Finding 5. Policy implications (1)

• Fostering a business environment for effective
  use of ICT
• Competition matters for ICT uptake and effective
  use.
• Regulatory burdens may limit investment and
  experimentation.
• Enable firms to make the necessary organisational
  changes.
• New skills are needed, requiring changes to
  education and training systems.
• Need for coherent innovation policies.
• Management matters ICT is no panacea.

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5. Policy implications (2)

• Competition in ICT goods and services
• despite difficulties in the sector
• Evidence of the benefits of competition is
  convincing and liberalisation should be pursued.
• Crucial for broadband development.
• Regulators must be vigilant for anti-competitive
  behaviour.
• Technology continues to develop policy
  frameworks and regulations should be technology
  neutral.
• ICT-related barriers should be addressed in Doha
  Round.

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5. Policy implications (3)

• Boost Security and Trust
• Uncertainty remains regarding the security of
  electronic commerce.
• Attention is required to security of information
  systems and networks, authentication, protection
  of privacy and consumer protection.
• Cross-border issues and enforcement.
• E-government can help build confidence and is
  important to improve government efficiency and
  the delivery of public services.

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5. Key Policy implications

• Strengthen competition in ICT goods and services.
• Foster a business environment for effective use
  of ICT (org. change, skills, innovation,
  competition).
• Spread the benefits of ICT across the economy.
• Boost security and trust to enhance usage of ICT.
• Policies for ICT diffusion and infrastructure
  development are no longer sufficient they need
  to be complemented with policies to remove
  barriers to demand and effective use of ICT.
• Results will be published in June 2003 short
  version for OECD Ministerial meeting in April.

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Current OECD empirical work related to growth and
productivity

• Establishment of OECD productivity database
  initially at aggregate level.
• Work on capital services enables growth
  accounting.
• Possible future work on labour composition.
• Analysis of data on enterprise demography
  Denmark appears to have high rate of firm
  creation.
• Further work with firm-level data workshop on
  the role of multinationals in productivity
  growth.
• Work on services performance.
• Database development STAN, input-output tables,
  patents, etc.
• Methodological development.