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InnovaTion, InvesTment and ImiTation:

InnovaTion, InvesTment and ImiTation: How Information and Communication Technology Affected European Productivity Performance Bart Los and Marcel Timmer, University of Groningen (Faculty of Economics, Groningen Growth and Development Centre)

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InnovaTion, InvesTment and ImiTation:

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  1. InnovaTion, InvesTment and ImiTation: How Information and Communication Technology Affected European Productivity Performance Bart Los and Marcel Timmer, University of Groningen (Faculty of Economics, Groningen Growth and Development Centre) This project is 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".

  2. End of European catch-up process

  3. Slowdown in most countries

  4. ICT as a GPT • ICT as GPT(see David, AER 1990; Brynjolfsson & Hitt, JEPersp 2000; Hall & Trajtenberg 2004 NBER) • Europe has exhausted imitation in old technologies, and is lagging in application of new ICT-based innovations(Aghion and Howitt 2006, JEEA). • Divergence is possible.Degree to which imitation can lead to productivity gains depends on technology operated (“appropriate technology”, Basu & Weil, QJE, 1998) • Traditional growth accounting findings: Total Factor Productivity growth in market services in US, but not in Europe (see Jorgenson, Ho and Stiroh 2005; Triplett and Bosworth 2004; Inklaar, O’Mahony and Timmer, RIW, 2003; Timmer & Van Ark, OxEP 2005.)

  5. This paper • TFP should be divided into pure technological change (“innovation”) and efficiency changes (“imitation”) through estimation of global production frontier. (see Los & Timmer, JDevE 2005, Timmer and Los, JPA 2005) • ICT capital is a critical input • Questions • How many years are European countries lagging behind in ICT? • How efficient are European countries in using “old-vintage” ICT? • Does this differ for various sectors? • How much of European growth is due to innovation and how much due to imitation?

  6. US’04 GDP/ hour GE’04? US’00 GE’00 ICT/hour Falling behind, catching up or leapfrogging?

  7. Frontier Estimation • Data Envelopment Analysis on 1 output (GDP) and 3 inputs (labour, IT and non-IT), assuming CRS (Färe et all, 1994, AER) • Non-parametric approach with very few restrictions on production technology • Advantage is flexible functional form, which allows for localized technological change • DEA with intertemporal dataset, to avoid technological regress. • Frontier for year y based on all observations from 1980 up to y • First frontier for 1990.

  8. Frontier estimation (1)

  9. Frontier estimation (2)

  10. Frontier estimation (3)

  11. Frontier estimation (4)

  12. Data • Fourteen countries: EU-15 (minus Luxembourg and Ireland), and U.S. • GDP (at PPP), total hours worked and capital stocks for 1980-2004 • Harmonised Capital stock estimates for six assets, using Perpetual Inventory Method, aggregated into two groups: Non-IT and IT capital • Non-IT: machinery, transport equipment and non-residential buildings; • IT: office and computing equipment, communication equipment and software. • All data from The Conference Board and Groningen Growth and Development Centre, Total Economy Database, May 2006, (www.ggdc.net) (Updated from Timmer & Van Ark, OxEP, 2005)

  13. Lagging ICT stocks in Europe

  14. Frontier Results 1990 • Frontier points include UK (80,97,88), US (89, 90), DK (80, 85, 86), France (80, 90)

  15. Frontier Results 1995 • New Frontier points include UK (95), US (94, 95), DK (95)

  16. Frontier Results 2000 • New Frontier points include US (98,99,00), UK (97, 00), DK (96,00)

  17. Frontier Results 2004 • New Frontier points include Fr (04), US (04), DK (02,04)

  18. European countries in 2004:

  19. ICT Lags ..….

  20. But some have succesfully imitated, or even innovated

  21. Efficiency scores

  22. European manufacturing is innovating

  23. Main findings and road ahead • Global production frontier is driven by investment in ICT capital goods • European countries lag US in application of ICT technology (4 to 16 years) • Some countries are succesful imitators (FR, UK, DK), but others face divergence (IT, PT, ES) • Different pattern at industry level: innovation in manufacturing in some countries

  24. Main findings and road ahead • Industry-level analysis, in particular services: EUKLEMS data project • Explanation of divergence in terms of “Imitation” (inefficiency model) including regulation and skilled labour supply as determinants

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