1 Catching-Up or Getting Stuck? Europes Troubles to Exploit ICTs Productivity Potential Bart van Ark...
Transcript of 1 Catching-Up or Getting Stuck? Europes Troubles to Exploit ICTs Productivity Potential Bart van Ark...
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Catching-Up or Getting Stuck? Europe’s Troubles to Exploit ICT’s Productivity
Potential
Bart van Ark & Robert InklaarUniversity of Groningen
and The Conference Board
Presentation for EU KLEMS Public Session on”The Determinants of Europe’s Productivity Revival”
13 May 2005Bank of Finland
Helsinki
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".
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Pre-EU KLEMS Databases Used(http://www.ggdc.net/dseries/)
GGDC/TCB Total Economy Database: GDP, Employment, Hours, Labour Cost 100 countries, 1950-2004 (link to Maddison’s historical
data) PPP-converted (2002 EKS PPP & 1990 GK PPP) The Conference Board, Performance 2005
GGDC 60-Industry Database Value Added, Employment, Hours 58 industries, +/- 25 OECD countries, 1979-2003 (linked
to OECD STAN) Harmonized deflation for ICT production and aggregation Van Ark, Inklaar & McGuckin (GD-60) and EU Report
(O’Mahony and van Ark, 2003)
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Pre-EU KLEMS Databases Used(http://www.ggdc.net/dseries/)
GGDC Total Economy Growth Accounting Database Macro growth accounting, incl. ICT breakout in capital
and TFP EU-15 countries and US, 1980-2004 Timmer, Ypma and van Ark (GD-67); forthcoming in
Oxford Economic Papers (2005)
Industry Growth Accounting Database Industry growth accounting, incl. ICT breakout in capital
and labour quality France, Germany, Netherlands, UK, US, 1979-2003 EU Report (O’Mahony and van Ark, 2003) and Inklaar,
O’Mahony and TImmer (GD-68)
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EU labour productivity and hours growth slowed further down since 2000 – and U.S.
is in stronger lead
US EU-15 EU-10 US EU-15 EU-10 US EU-15 EU-10
1987-1995 2.7 2.2 2.6 1.6 0.0 -0.5 1.1 2.3 3.11995-2004 3.4 2.2 3.8 0.9 0.7 -0.6 2.5 1.5 4.3of which:
1995-2000 4.1 2.7 4.0 1.9 0.9 0.0 2.1 1.8 4.02000-2004 2.5 1.4 3.4 -0.4 0.4 -1.3 2.9 1.0 4.7
of which:2004 4.4 2.1 4.8 1.4 0.8 0.4 3.0 1.3 4.3
acceleration 2000-2004 over1995-2000 -1.6 -1.3 -0.6 -2.3 -0.5 -1.3 0.8 -0.8 0.7
University of Groningen and Conference Board, 2005
Real GDP Total Hours Labour productivity
Germany: until 1991 only West Germany; from 1991 All Germany
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The slowdown is EU productivity growth is of a structural nature
Trend growth of annual growth in GDP per hour worked, US and EU-15, 1979-2004 with Hodrick and Prescott (1997) filter
0.0%
0.5%
1.0%
1.5%
2.0%
2.5%
3.0%
3.5%
1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004
US EU15
U.S.
EU-15
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Macro growth accounting
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Does ICT Matter?
Three channels through which Information and
Communication Technology (ICT) impacts on productivity growth: 1st channel: Effect of ICT investment on labour
productivity growth through ICT capital deepening
2nd channel: Rapid technological change in ICT producing industries leading to TFP growth
3rd channel: Total Factor Productivity (TFP) growth in industries that make intensive use of ICT (knowledge spillovers)
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The Impact of ICT on Economic Growth
1: investment channel
3: spillover
channel ??
2: technology channel
© Erik Bartelsman/Jeroen Hinloopen
Sources of Labour Productivity Growth, Total Economy (Macro-Measured)EU-15 and U.S., 1987-1995 and 1995-2004
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
EU-15 EU-15 U.S. U.S.
1987-1995 1995-2004 1987-1995 1995-2004
ICT capital deepening Non-ICT capital deepening ICT-production TFP Non-ICT TFP
Slowdown in ‘non-ICT’ capital and ‘non-ICT’ TFP are major drivers of EU15 slowdown since 1995
Since 2000, ICT capital deepening slowed to pre-1995 levels, but U.S. shows acceleration in ‘non-ICT’ TFP
Sources of Labour Productivity Growth, Total Economy (Macro-Measured)EU-15 and U.S., 1995-2000 and 2000-2004
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
EU-15 EU-15 U.S. U.S.
1995-2000 2000-2004 1995-2000 2000-2004
ICT capital deepening Non-ICT capital deepening ICT-production TFP Non-ICT TFP
Focus on market sector of economy accentuates EU4-US gap further
Sources of Labour Productivity Growth, Market Economy (Aggregated from Industry Level), EU-4 and U.S., 1995-2000 and 2000-2003
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1995-2000 2000-2003 1995-2000 2000-2003
EU-4 (DE,FR,NL,UK) U.S.
Labour Q&R ICT capital deepening Non-ICT capital deepening ICT production TFP Non-ICT TFP
Pre-2000 leading ICT capital deepening for a small number of EU member states
ICT capital deepening contribution, 1995-2000 (Channel 1)
0.00 0.20 0.40 0.60 0.80 1.00
US
EU-15
Sweden
Belgium
Denmark
UK
Ireland
Portugal
Austria
Germany
Netherlands
Finland
Luxembourg
Italy
Greece
France
Spain
Post-2000 slowdown of ICT capital deepening across the board
ICT capital deepening contribution, 1995-2000 & 2000-2004
0.00 0.20 0.40 0.60 0.80 1.00
US
EU-15
Sweden
Belgium
Denmark
UK
Ireland
Portugal
Austria
Germany
Netherlands
Finland
Luxembourg
Italy
Greece
France
Spain 2000-2004
1995-2000
Post-2000 slowdown in TFP from ICT production bigger in U.S. than in EU countries
ICT TFP contribution, 1995-2000 & 2000-2004 (Channel 2)
0.00 0.50 1.00 1.50 2.00
US
EU-15
Ireland
Finland
Sweden
UK
France
Austria
Italy
Germany
Portugal
Spain
Belgium
Netherlands
Denmark
Greece
Luxembourg 2000-2004
1995-2000
Since 2000 only UK, Sweden and US show improvement in “non-ICT” TFP, and Finland and Greece also remain high
Non-ICT TFP contribution, 1995-2000 & 2000-2004 (incl. channel 3)
-1.50 -1.00 -0.50 0.00 0.50 1.00 1.50 2.00 2.50
US
EU-15
Finland
Ireland
Greece
Luxembourg
Belgium
Austria
France
Sweden
Portugal
Germany
Denmark
Netherlands
UK
Italy
Spain 2000-2004
1995-2000
Before 2000 no evidence of spillovers from ICT use to TFP
ICT and "Non-ICT" TFP growth, 1995-2000
GRC
SWE
US
FIN
UK
IRE
FRA
NLD
ESP
PRT
EU-15
DEU
AUTBEL
DNK
LUX
ITA
TFP=-0.14*ICT + 1.05(-0.16 ) ,
R2 = 0.0017
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 1.1 1.2
ICT capital deepening contribution to labour productivity growth
"No
n-I
CT
" T
FP
gro
wth
Development since 2000 are suggestive of the possibility of spillovers from ICT use to TFP
ICT and "Non-ICT" TFP growth, 2000-2004
ITA
LUX
DNK
BELAUTDEU
EU-15
PRTESP
NLD
FRAIRE
UK
FINUS
SWEGRC
TFP= 3.91*ICT - 1.12(1.91) ,
R2 = 0.19
-1.5
-1.0
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
0.1 0.2 0.3 0.4 0.5 0.6
ICT capital deepening contribution to labour productivity growth
"No
n-I
CT
" T
FP
gro
wth
Alternative specifications show similar results
Dependent variable: TFP growthICT contribution 0.18 0.26 4.79 4.77
(0.14) (0.20) (2.08) (2.20)TFP level -0.02 -0.02
(-1.04) (-1.74)
Dependent variable: Non-ICT TFP growthICT contribution -0.14 -0.10 3.91 3.88
(-0.16) (-0.11) (1.91) (2.17)TFP level -0.01 -0.03
(-1.01) (-2.42)
2000-20041995-2000
1995-2000 2000-2004
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Sectoral Decomposition
Services industries are key to faster productivity growth in U.S. over Europe
-0.5
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1995-2000 2000-2003 1995-2000 2000-2003
EU-15 U.S.
Other industries &reallocationBusiness services
Securities trade
Banking
Retail trade
Wholesale trade
ICT production
Contribution of major industry group to labour productivity growth of market economy, 1995-2003
Contributions of service industries is low across countries, except Sweden, UK, Greece and Ireland
Industry contributions to aggregate labour productivity growth, 2000-2003
-2.00 0.00 2.00 4.00 6.00 8.00 10.00
US
EU-15
Ireland
Greece
Sweden
UK
Austria
Finland
Denmark
France
Belgium
Germany
Spain
Netherlands
Portugal
Italy
Luxembourg
ICT production Wholesale trade Retail trade Banking Securities trade Telecommunications Other industries & reallocation
Europe’s productivity advantage in telecommunication is gone but it remains mostly TFP driven
Telecommunications
-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
Fra
nce
Ger
man
yN
ethe
rland
sU
KU
.S.
Labour quality contribution ICT deepening contribution Non-ICT deepening contribution TFP growth
In retail trade US and UK show clear advantage over Germany, France and Netherlands; IT capital is limited
Retail trade
-0.10 0.00 0.10 0.20 0.30 0.40 0.50 0.60
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
Fra
nce
Ger
man
yN
ethe
rland
sU
KU
.S.
Labour quality contribution ICT deepening contribution Non-ICT deepening contribution TFP growth
In business services, TFP growth in many European countries is strongly negative; IT is a big part of growth
Business services
-0.60 -0.40 -0.20 0.00 0.20 0.40 0.60 0.80
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
2000-2003
1995-2000
Fra
nce
Ger
man
yN
ethe
rland
sU
KU
.S.
Labour quality contribution ICT deepening contribution Non-ICT deepening contribution TFP growth
U.S. shows acceleration of TFP growth in business services, but no further acceleration elsewhere
5-year moving average of U.S. TFP growth
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Wholesale trade Retail trade Financial intermediation Business services
In Europe TFP growth in market services is slower and shows no acceleration
5-year moving average of EU-4 TFP growth
-0.6
-0.4
-0.2
0.0
0.2
0.4
0.6
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001
Wholesale trade Retail trade Financial intermediation Business services
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Have things changed since 2000?
ICT capital deepening has slowed almost everywhere to pre-1995 levels
U.S. shows strong acceleration in TFP growth, with a slowdown in most European countries
There is some suggestive evidence that spillovers from ICT use are impacting TFP growth …
We need to look in services: European communication sector remains strong on TFP U.S. and UK retail are clearly ahead of rest of Europe Business services is taking off in U.S.
There are no signs that Europe is catching up on U.S. in ICT use and related productivity
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Policy Questions
Is slow TFP the result of inadequate management of intangible capital or inflexible product and labour markets?
Are innovation policies of much help to drive innovation and productivity in many services?
Are reform & competition policies sufficiently focused on services?
Is Europe sufficiently exploiting comparative advantages across borders?
Are issues concerning reform management in Europe properly managed?
Should we focus on the TFP slowdown or also on causes for lack of capital deepening in non-ICT?