Contribution of ICT to Economic Growth in Asia

1. Contribution of ICT to Economic Growth in Asia ITS 15th Biennial Conference Berlin, Germany, September 7, 2004 Takahito Kanamori (Waseda University) Masahiro Fujiwara (KDDI Research Institute) Hitoshi Mitomo (Waseda University)

2. Topics of the Presentation • Background • Framework • Data • Results and Comments • Conclusions

3. 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.

4. Results from Past Studies • The contribution of ICT to economic growth reported in selected past studies: Source: Jorgenson and Stiroh [6] Source: Coleccia and Schreyer [1]

5. 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

6. 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

7. 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

8. Framework • The aggregate production function is defined as 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.

9. Growth Accounting • Under the standard neoclassical assumptions 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

10. User Cost of Capital • The user cost formula is applied to approximate 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%

11. 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

12. 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

13. 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

14. 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

15. 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

16. 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

17. 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

18. 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

19. 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.

20. Graph of the Contribution of Communications Equipment

21. 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

22. 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

23. 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

24. 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

25. References • [1] A. Colecchia and P. Schreyer, "ICT Investment and Economic Growth In the 1990s: Is the United States a Unique Case?", OECD STI Working Papers, pp. 1-31, 2001. • [2] B. M. Fraumeni, "The Measurement of Depreciation in the U.S. National Income and Product Accounts", 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 Comparisons at the University of Pennsylvania (CICUP), October 2002 • [4] D. W. Jorgenson, “Information Technology and the U.S. Economy.” American Economic Review, pp.1-31, 2001. • [5] D. W. Jorgenson and K. Motohashi, “Economic Growth of Japan and the United States in the Information Age.” RIETI Discussion Paper Series 03-E-015, 2003 • [6] D. W. Jorgenson and K.J. Stiroh, "Raising the Speed Limit: U.S. Economic Growth in the Information Age", Brookings Papers on Economic Activity, Vol. 1, pp. 125-235, 2000. • [7] S. D. Oliner and D.E. Sichel, "Computers and Output Growth Revisited: How Big Is the Puzzle?", Brookings Papers on Economic Activity, Vol. 2, pp. 273-317, 1994. • [8] S. D. Oliner and D.E. Sichel, "Information Technology and Productivity: Where Are We Now and Where Are We Going?", Federal Reserve Board of Atlanta Economic Review, pp. 15-44, 2002. • [9] P. Schreyer, “The Contribution of Information and Communication Technology to Output Growth: A Study of the G7 Studies.” STI Working Papers 2000/2, 2000. • [10] R. M. Solow, “Technical Change and the Aggregate Production Function.” Review of Economics and Statistics, pp.313-330, 1957.