ICT and Australia's productivity growth: Understanding the relationship

Prometheus: Critical Studies in Innovation

Volumn 24, Issue 2, 2006, Pages 189-212

  Anderssen, Harvey ^a  

^a NONE

Author keywords

Economic growth; General purpose technology; Innovation; Productivity

Indexed keywords

ECONOMIC GROWTH; INFORMATION AND COMMUNICATION TECHNOLOGY; INNOVATION; TECHNOLOGY TRANSFER;

AUSTRALASIA; AUSTRALIA;

EID: 33744915811     PISSN: 08109028     EISSN: 14701030     Source Type: Journal    
DOI: 10.1080/08109020600715115     Document Type: Article

References (94)

1. The DCITA research that the paper draws on is published as a series of Occasional Economic Papers and is available at www.dcita.gov.au/ie/ productivity_Rivers/macro_studies and www.dcita.gov.au/ie/ productivity_Rivers/firm-level_studies.
2. Ilkka Tuomi, 'Realising the productivity potential of ICTs', The IPTS Report, 85, July 2004, available at: http://www.jrc.es/home/report/ english/articles/vol85/ICT2E856.htm.
3. Competitiveness involves dynamic considerations, such as inter-temporal optimising of upgrading decisions under uncertainty. For a simple introduction to the issues and an empirical demonstration, see Sanghoon Ahn, 'Technology upgrading with learning cost', Conference Paper for DRUID Knowledge Conference, June 2003.
4. Tuomi, op. cit.
5. Leah Lievrouw and Sonia Livingstone (eds), Handbook of New Media: Social Shaping and Consequences of ICTs, Sage Publications, London, 2002, p. 7.
6. Nicholas Carr, Does IT Matter? Harvard Business School Press, 2004.
7. E.g. Ahn, op. cit.
8. As suggested in Elhanan Helpman, The Mystery of Economic Growth, Harvard University Press, 2004.
9. This terminology is due to Douglass C. North, Structure and Change in Economic History, W.W. Norton and Co, New York, 1981. While one might question whether agriculture was the first such revolution, we follow North's terminology.
10. While neoclassical analysis is concerned with the comparison of equilibrium states, growth economists focus on the comparison of 'trajectories' and how their shapes differs.
11. See in particular, Jared Diamond, Guns, Germs, and Steel, A Short History of Everybody, Vintage, London, 1998.
12. Joseph A. Schumpeter, The Theory of Economic Development: An Inquiry into Profits, Capital, Credit, Interest and the Business Cycles, Harvard Business Press, Boston, 1934
13. and Simon Kuznets, Secular Movements in Production and Prices, Riverside Press, Cambridge, Boston, 1930.
14. For a simple account of Kuznets' law on innovation, see Eduardo Pol and Peter Carroll, An Introduction to Economics and the Creative Economy, Innovation Planet, University of Wollongong, 2004.
15. C. Freeman and F. Louca, As Time Goes By: From the Industrial Revolution to the Information Revolution, Oxford University Press, Oxford, 2001
16. Carlota Perez, Technological Revolutions and Financial Capital: The Dynamics of Bubbles and Golden Ages, Edward Elgar, Cheltenham, 2002.
17. Paul David, 'Computer and dynamo: The modern productivity paradox in a not-too-distant mirror', Technology and Productivity, OECD, Paris, 1991.
18. The Solow paradox derives from his famous quip that 'You can see the computer age everywhere but in the productivity statistics', in Robert Solow, 'We'd better watch out', New York Times Book Review, 1987, p. 36.
19. For a more formal definition of the 'Productivity paradox of the information age' see Francesco Daveri, 'Information technology and productivity growth across countries and sectors', in Derek C. Jones (ed.), New Economy Handbook, Elsevier, 2003, ch. 5, pp. 101-20.
20. In Australia, this was acknowledged by Australian Treasury, 'A more productive Australia: Technology and policy', Round Up, Winter 2001, p. 37 (an extract from Budget Paper 1 of 2000-01), available at: www.treasury.gov.au/documents/103/PDF/roundup.pdf.
21. Paul David and Gavin Wright, 'General purpose technologies and surges in productivity: Historical reflections on the future of the ICT revolution', University of Oxford Discussion Papers in Economic and Social History, No. 311999, 1999 discusses the GPT concept in relation to ICT.
22. Elhanan Helpman (ed.), General Purpose Technologies and Economic Growth, MIT Press, Cambridge, 1998 includes a selection of the first generation of GPT studies stimulated by Bresnahan and Trajtenberg's 1992 NBER paper. Most relate to or were stimulated by the advent of ICT.
23. John Fernald and Shanthi Ramnath, 'Information technology and the US productivity acceleration', Chicago Fed Letter, The Federal Reserve Bank of Chicago, September 2003, Number 193, available at: http://www.chicagofed.org/publications/fedletter/2003/cflsept2003_193.pdf
24. uses the GPT concept as does Danny Quah, Technology Dissemination and Economic Growth: Some Lessons for the New Economy, Centre for Economic Performance, London School of Economics and Political Science, September 2001, available at: http://cep.lse.ac.uk/pubs/download/dp0522.pdf. The lead US New Economy sceptic
25. Robert Gordon, recognised the GPT concept in 2003 - see Robert J. Gordon, Five Puzzles in the Behavior of Productivity, Investment and Innovation, draft chapter for World Economic Forum, Global Competitiveness Report, 2003-04, 2003, available at: http://faculty-web.at.northwestern.edu/economics/gordon/WEFTEXT.pdf, September and reported in The Economist, 13 September 2003.
26. Helpman, 2004, op. cit., put GPT in a growth perspective.
27. John Kay, 'Technology and wealth creation: Where we are, where we're going', mimeo, 19 December 2000, available at: www.johnkay.com/print/ 187.html, refers to the narrowly defined IT as a general enabling technology.
28. See Ashish Arora, Andrea Fosfuri and Alfonso Gamberdella, Markets for Technology: The Economics of Innovation and Corporate Strategy, MIT Press, Cambridge, MA, 2001, especially ch. 6: 'Markets for technology and the size of the market: Adam Smith and the division of innovative labour revisited', pp. 143-67.
29. Nathan Rosenberg, Perspectives on Technology, Cambridge University Press, Cambridge, 1976.
30. As acknowledged by Kenneth Carlaw and Richard Lipsey, DCITA Occasional Economic Paper, General Purpose Technologies and the Information Economy: An Evolutionary Approach to Macroeconomic Modelling, 2006, which is based on a paper presented by Kenneth Carlaw to the International Workshop on Evolutionary Modelling, University of Queensland, July 2005.
31. Richard G. Lipsey, Kenneth I. Carlaw and Clifford T. Bekar, Economic Transformations: General Purpose Technologies and Long Term Economic Growth, Oxford University Press, Oxford, 2005.
32. See Helpman, 2004, op. cit.
33. David and Wright, op. cit., for examples.
34. See Samuel J. Palmisano, 'Innovation and leadership in the 21st century', address to the Rensselaer Polytechnic Institute, New York, 15 September 2005, available at: http://www.ibm.com/ibm/sjp/09_15_2005.htm.
35. See Robert Solow, 'A contribution to the theory of economic growth', Quarterly Journal of Economics, 70, 1956, pp. 65-94.
36. See, for example, Don Lamberton, 'The economics of information and industrial change', in Lievrouw and Livingstone (eds), op. cit., ch. 20, pp. 334-49.
37. For more on the roots of information economics and its importance, see Ken Boulding, 'The knowledge industry. Review of Fritz Machlup, The Production and Distribution of Knowledge in the United States', Challenge, 11, 8, 1963, pp. 36-8
38. and Fritz Machlup and Una Mansfield (eds), The Study of Information: Interdisciplinary Messages, Wiley, New York, 1983.
39. See, for example, Peter J. Boettke, 'Information and knowledge: Austrian economics in search of its uniqueness', The Review of Austrian Economics, 15, 4, 2002, pp. 263-74.
40. As outlined in DCITA, ICT and Australian Productivity: Methodologies and Measures, Occasional Economic Paper, 2006, ch. 1.
41. See Moses Abramovitz, 'Resource and output trends in the United States since 1870', American Economic Review, 46, 2, May 1956, pp. 5-23.
42. Zvi Grilliches, R&D, Education and Productivity: A Retrospective, Harvard University Press, 2000.
43. Richard Nelson and Stanley G. Winter, An Evolutionary Theory of Economic Change, The Belknap Press, Cambridge, MA, 1982.
44. Richard R. Nelson, 'The agenda for growth theory', IIASA Working Paper WP-94-85, International Institute for Applied Systems Analysis, Laxenberg, Austria, September 1994.
45. See also Richard R. Nelson, 'The evolution of comparative or competitive advantage: A preliminary report on a study', IIASA Working Paper WP-96-21, IIASA, Laxenburg, Austria, February 1996
46. and Richard R. Nelson, The Sources of Economic Growth, Harvard University Press, Cambridge, MA, 1996.
47. Richard R. Nelson, Technology, Institutions and Economic Growth, Harvard University Press, Cambridge, MA, 2005.
48. See, for example, Ahn, op. cit.
49. See Susanto Basu, John G. Fernald, Nicholas Oulton and Sylaja Srinivasan, 'The case of the missing productivity growth: Or, does information technology explain why productivity accelerated in the United States but not the United Kingdom?', NBER Working Paper No. 10010, 2003
50. in Mark Gertler and Kenneth S. Rogoff, NBER Macroeconomics Annual 2003, MIT Press, Cambridge, MA, 2003.
51. As pointed out by Paul Schreyer, OECD Productivity Manual: A Guide to the Measurement of Industry- Level and Aggregate Productivity Growth, OECD, Paris, 2001, available at: www.oecd.org/catch_404/?404; http://www.oecd.org/subject/growth/prod-manual.pdf.
52. J. Stan Metcalfe, 'The evolutionary explanation of total factor productivity growth: Macro measurement and micro process', CRIC Discussion Paper No 1, Centre for Research into Innovation and Competitiveness, Manchester, June 1997, p. 10.
53. See, for example, Boettke, op. cit., or the works of Israel M. Kirzner.
54. The view has links to the role and importance of information, as empirically shown, for example by Boulding, op. cit.
55. and Machlup and Mansfield, op. cit.
56. Schreyer, op. cit.
57. This is increasingly clear in the recent books on economic growth, for example, Nelson, 2005, op. cit.
58. Lipsey et al., op. cit.
59. Helpman, 2004, op. cit
60. Grilliches, 2000, op. cit.
61. Angus Maddison, Growth and Interaction in the World Economy: The Roots of Modernity, AEI Press, Washington, 2001
62. and Joel Mokyr, The Gifts of Athena: Historical Origins of the Knowledge Economy, Princeton University Press, Princeton, NJ, 2002.
63. J. Stan Metcalfe, 'Knowledge of growth and the growth of knowledge', Presidential Address to the 8th International J. A. Schumpeter Society Conference, Centre for Innovation and Competitiveness (CRIC), University of Manchester, 2001 p. 10.
64. Mark W. McElroy, The New Knowledge Management: Complexity Learning and Sustainable Innovation, Butterworth Heinemann/Knowledge Management Consortium International (KMCI Press), Burlington, MA 2003.
65. See Paul Gretton, Jyothi Gali and Dean Parham, Uptake and Impacts of the ICTs in the Australian Economy: Evidence from Aggregate, Sectoral and Firm Levels, Conference Paper, OECD, Paris, 9 December 2002, available at: http://www.pc.gov.au/research/confproc/uiict/index.html.
66. Productivity Commission, Microeconomic Reform and Australian Productivity: Exploring the Links, H999 (available at: http://www.pc.gov.au/research/commres/meraap/meraap1.pdf), refers to dynamic efficiency as the capacity to improve efficiency and generate the most from resources over time. This can mean finding better products and better ways of producing goods and services. Investments in education, research and innovation can be important in this regard. Dynamic efficiency can also refer to the ability to adapt quickly and at low cost to changed economic conditions and thereby maintain output and productivity performance in the face of economic 'shocks'.
67. The specification has a strong neoclassical flavour and seems unnecessarily narrow when compared to the role of innovation policy as outlined by the Australian Department of Industry, Science and Resources, A New Economic Paradigm: Innovation-based Evolutionary Systems, Occasional Paper 4 in the Discussions of Science and Innovation Series, 1999.
68. See Sanghoon Ahn, 'Competition, innovation and productivity growth: A review of theory and evidence', OECD Working Paper, ECO/WKP(2002)3, 2002.
69. Productivity Commission, op. cit.
70. See Dean Parham, 'The New Economy? A look at Australia's productivity performance', Productivity Commission Staff Research Paper, AusInfo, Canberra, 1999.
71. Dean Parham, Paul Roberts and H. Sun, Information Technology and Australia's Productivity Surge, Productivity Commission Staff Research Paper, Canberra, 2001.
72. See Gretton et al., op. cit.
73. The estimation is detailed in Dean Parham, 'Sources of Australia's productivity revival', Economic Record, 80, 249, 2004, pp. 239-57.
74. Maddison, drawing on year 2000 research, puts the view that 'there has been a belated but positive payoff in macroeconomic productivity from a couple of decades of high investment in the "new economy". The fact that there have been no very evident spillovers as yet in computer-using industries may well be due to the costs of absorbing new technologies which have involved a large input of highly trained people, rapid obsolescence of equipment and skills, and some serious blunders'. He suggests that, 'in the longer run, when the new technology has been fully assimilated, significant spillovers to other sectors of the economy may well occur', and 'there are grounds for hoping that progress may be faster than in 1973-95'. This view is entirely consistent with the unevenness in the trajectory of properties associated with the dynamics of innovation triggered by the emergence of a new phase of technological change. In other words, it is consistent with the GPT theorising (Maddison, op. cit., p. 137).
75. OECD, The New Economy: Beyond the Hype, The OECD Growth Project, OECD, Paris, 2001, August. The 'realising the potential of ICT' element in the prescription can be seen as having a large overlap with the other three new elements: Greater emphasis on innovation, enterprise and skills.
76. Gordon, op. cit. Even the most prominent and longstanding critic, Robert Gordon, changed from an ICT sceptic to an advocate. While Gordon's reversal followed statistics that ruled out the business cycle as a source of the high US MFPG, the persuasion of colleagues, many of whom considered ICT to be a GPT, appears also to have influenced his decision.
77. Erik Brynjolfsson and Lorin Hitt, 'Computing productivity: Firm-level evidence', Review of Economics and Statistics, November 2003, available at: http://s.ssrn.com/sol3/s.cfm?abstract_id=290325.
78. Surendra Gera and Wulong Gu, 'The effect of organisational innovation and information technology on firm performance', International Productivity Monitor, No. 9, Fall 2004, abstract.
79. The ABS use a peak-to-peak criterion on the growth cycle data derived from its multifactor productivity (MFP) indexes to select suitable intervals over which the MFP growths can be averaged. Australia is alone in the use of this methodology, developed by Charles Aspden in 1989 and 1990.
80. The debate continues to this time, as evidenced by the 2005 paper into the fundamental issue of why productivity tends to be pro-cyclical by Robert Inklaar, 'Cyclical productivity in Europe and the United States, evaluating the evidence on returns to scale and input utilization', Research Memorandum GD-7, Groningen Growth and Development.
81. John Quiggin, 'The Australian productivity "Miracle": A sceptical view', Agenda, 8, 4, 2001, pp. 801-17.
82. Steve Dowrick, 'Productivity boom: Mirage or miracle' in J. Niewenhuysen, P. Lloyd and M. Mead (eds), Reshaping Australia's Economy: Growth with Equity and Sustainability, Cambridge University Press, Cambridge, 2001, pp. 19-32.
83. Productivity Commission, Trends in Australian Manufacturing, Commission Research Paper, Canberra, 2003.
84. This fundamental fact is as true for changes in broad institution factors, such as those associated with economic reform, as it is of a GPT like ICT. This makes distinguishing between such causes difficult.
85. See for example, Bronwyn H. Hall, 'Innovation and diffusion', in Jan Fagerberg, David C. Mowery and Richard R. Nelson (eds), The Oxford Handbook of Innovation, Oxford University Press, 2005, ch. 17, pp. 459-85.
86. The seminal work is by Everett M. Rogers, Diffusion of Innovations, 1st edition, The Free Press, New York, 1962 (4th edition, New York, 1995).
87. A recent example of a recent adaptation is John Dimmick and Tao Wang, 'Toward an economic theory of media diffusion based on the parameters of the logistics growth equation', Journal of Media Economics, 18, 4, pp. 233-46.
88. Ovum, Productivity and Organisational Transformation: Optimising Investment in ICT, NOIE, 2003.
89. Ovum, The Australian Mining and ICT Industries: Productivity and Industry Growth, NOIE/DCITA, 2004.
90. Howard Partners, Digital Factories: The Hidden Revolution in Australian Manufacturing, DCITA, 2005.
91. Opticon and ANU, Achieving Value for ICT: Key Management Strategies, DCITA, 2005.
92. See Bronwyn H. Hall and Beethika Khan, Adoption of New Technology, University of California, Berkley Department of Economics Working Paper No. E03-330, May 2003, available at: http://econwpa.wustl.edu:8089/eps/ dev/papers/0401/0401001.pdf.
93. Quah, op. cit., summary.
94. In addition to cited works of the prominent researchers mentioned in the article, one would add Robert Solow, 'Growth theory and after', R. M. Solow-Prize Lecture, 1987 and 2001, Nobel e-Museum Laureates, available at: http://www.nobel.se/economics/laureates/1987/solowlecture.html.