ICEG EICEG European uropean Center Center

The ICT Sector and Economic Growth:Some Thoughts on the NMS Countries

Pál GáspárPál Gáspár

Presentation at the Annual Conference of IDATE, in Presentation at the Annual Conference of IDATE, in Monpellier, 24 November 2004Monpellier, 24 November 2004

ICEG European Center, www.icegec.org

The Structure of presentation

I. ICT and growth : the main contributing factors

II. Experiences of the NMS

III. Policies to enhance ICT contribution to growth in NMS

I. ICT and growth : the main contributing factors

ICEG European Center, www.icegec.org

Contribution of the ICT sector to growth

The three main channels :• Investments in ICT sector lead to capital deepening and more

productive use of capital,• Technical progress in the ICT sector leads to inceasing TFP in ICT-

producing sectors • Increase in overall TFP through spill-overs, network effects and

overall efficiency gains

Distinction between:• Contribution of ICT producing, ICT-using and non-ICT sectors differs • contribution of ICT manufacturing and services within ICT producing

and using sectors differs

ICEG European Center, www.icegec.org

Looking at individual factors

A. Investments in the ICT sector:• - Investments in ICTcreated in advanced countries an annual GDP

growth of between 0.3% and 0.8% according to OECD (2003)• - US: ICT investment in total is 30% in Europe 17%.

B. Increase in ICT sector:• Some countries have very strong ICT sectors that contribute

significantly to the GDP growth (annual contribution in Korea, Ireland and Finland: approximately 1%).

• Gordon: ICT production matters, not the diffusion (presence of few very active producers in IT)

• Daveri (04) in Finnland what mattered was not the ICT usage, but the driving force was the ICT production.(Nokia)

ICEG European Center, www.icegec.org

Looking at individual factors

C. Increase of TFP creates economic growth:• Jorgenson-Ho-Stiroh(02): productivity growth due to ICT capital accummulation in

several industries, • ICT usage matters Blanchard (03), Art-Inklar-vaGuckin (03), McKinsey Global Institute

(02), Stiroh (03). • The major difference between the USA and the EU is in Y/L in retail, banking and

wholesale,

D. Other factors or the ones that help to realize the productivity advances:

• Retail sector: competition what matters and not IT in accelerating Y/L growth,• McKinsey-report: organizational change accompanying IT investments and deepening

matters, • Gordon : increase in IT I increases Y/L not everywhwere and not in each industry,• Bailey : not all IT investment but process management, better softwares, and

improvement in workplace organizations

II. Experiences of the NMS with ICT Sector and Economic Growth

ICEG European Center, www.icegec.org

The Spread of ICT use in NMS

ICT Market value in Euro, 2003

0

200

400

600

800

1000

1200

1400

1600

RO TR BG LT PL LV SK EE HU CZ MA SL EU-15

ICEG European Center, www.icegec.org

The contribution of the ICT Sector to GDP

ICT sector in GDP

0

5

10

15

20

25

LA PL SK RO LI CZ EU.15 HU BG SLO EE MA

ICEG European Center, www.icegec.org

Features of ICT Sector Contributiton

A. ICT contributed mainly to TFP growth through the spread of ICT sector

- ICT producing sectors 5%, using 26% and non-ict 68% in the Eu in 2003, in HU 7%, 25% and 68%, CZ 4%,24%,72% and PL 2%,24%,74%

B. Factors of ICT contribution• labor cuts and TFP drove productivity increases,• its direct productivity contribtuion in NMS equals EU-15,• less contribution via the increase of TFP or ICT capital intensity, • in most countries worse indicators in case of use • indirect effects are weak: organisaitonal changes due to ICT, increase

use of ICT in the busienss and housholds sector contributes far less than in the EU

ICEG European Center, www.icegec.org

Future Policies Issues

• encourage FDI and I in ICT sectors especially in those countries where the comparative advantages are present (general investment climate)

• create more competition by easing entry conditions and progressing with deregulation,

• support faster increase in services and ICT use besides manufacturing: access (costs), content (eGovernment) and technology (broadband)

• make steps to improve current position in key Lisbon indicators

ICEG European Center, www.icegec.org

Labour Productivity

Labour Productivity, 2003, EU-15=100

0

20

40

60

80

100

120

BG RO TR LV LT EE PL ACC-13 NMS SK CZ HU SI CY MT EU-15

ICEG European Center, www.icegec.org

Employment Rates

Employment rates, %

0

10

20

30

40

50

60

70

80

TR PL BG MT HU RO SK ACC-13

NMS LV LT EE SI EU-15 CZ CY

ICEG European Center, www.icegec.org

R+D Expenditures

R+D expenditures (in % of GDP)

0

0,5

1

1,5

2

2,5

CY RO LV BG PL EE TR LT SK ACC-13 HU CZ SI EU-15

THANK YOU FOR YOUR ATTENTIONTHANK YOU FOR YOUR ATTENTION

PÁL GÁSPÁRPÁL GÁSPÁRDirectorDirector

14 Korompai Street 14 Korompai Street H-1124 BudapestH-1124 Budapest

Tel: +36-1-248-1160Tel: +36-1-248-1160Fax: +36-1-248-1161Fax: +36-1-248-1161

E-mail: icegec@axelero.huE-mail: icegec@axelero.huWeb site : www.icegec.orgWeb site : www.icegec.org