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Productivity Surge and ICT investments

Benchmarking Efficiency of Telecommunication Industries in the US and Major European Countries A Stochastic Possibility Frontiers Approach by Georg Erber First Transatlantic Telecom Industry Forum, IDATE, Montpellier Nov ember 22, 2005. Productivity Surge and ICT investments.

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Productivity Surge and ICT investments

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  1. Benchmarking Efficiency of Telecommunication Industries in the US and Major European Countries A Stochastic Possibility Frontiers ApproachbyGeorg ErberFirst Transatlantic Telecom Industry Forum, IDATE, Montpellier November 22, 2005

  2. Productivity Surge and ICT investments • US in the mid 1990s experienced a strong recovery of productivity, in labour as well as in total factor productivity (TFP) • One key factor always expected to have been underestimated were substantial ICT investments

  3. Key drivers in communication • Standardization in data communication via the IP-protocol • Broadband revolution • Convergence in networks, All-IP-networks

  4. Mobile and in general wireless communicationLeads to ubiquous communication and computation • No end currently insight of a great transformation how production processes are organized • ICT as a key driver in globalization

  5. Methodological Framework • Standard Method: Growth Accounting Approach • Alternative Method: Production Possibility Frontiers

  6. The Inefficiency Hypothesis • Inefficient use is an important factor • Anecdotal evidence: Huge investments in ICT project failed, e.g. UMTS or TollCollect • Microdata show a high dispersion of ICT productivity

  7. Potential Complementary Factors • ICT-Capital/ICT-Skill-Complementarity • Internally in the firm, ICT-based company organization • Externally in the supply and value chain, transaction cost based global value chains

  8. A first step in efficiency/inefficiency analysis • A production possibility set, feasib´le solutions • A production possibility frontier is the outer boundary of production possibility set, i.e. it is the location of the maximum output attainable with a given amount of factor inputs

  9. Production Possibility Frontiers

  10. Choosing a probability distribution for the inefficiency random variable • Our analysis currently assumes a truncated normal distribution for the inefficiency shocks • Estimation method is Maximum-Likelihood-Estimation which gives consistent and asymptotically efficient parameter estimates

  11. Measuring Inefficiency at the country and industry level • Annual data from 1979-2001 • Countries included (US, Germany, UK, France, Netherlands plus the aggregate of the four EU countries, EU4) • Input Factors included (Labour, Labour quality, ICT capital stock, non-ICT capital stock) • Output: value added

  12. Conclusions • Using time-varying methods a ranking in 2001 is: • 1. Netherlands • 2. UK • 3. France • 4. Germany • 5. US

  13. Conclusions • All countries show a J-curve of adoption of two major innovations in telecommunication: deregulation of TK-markets and the Internet • Phase delays show that the following sequence: • 1. US (1993), 2. UK (1994), 3. Netherlands (1996), 4. France (1997), 5. Germany (1999)

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