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1 Catching-Up or Getting Stuck? Europes Troubles to Exploit ICTs Productivity Potential Bart van Ark & Robert Inklaar University of Groningen and The Conference.

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Presentation on theme: "1 Catching-Up or Getting Stuck? Europes Troubles to Exploit ICTs Productivity Potential Bart van Ark & Robert Inklaar University of Groningen and The Conference."— Presentation transcript:

1 1 Catching-Up or Getting Stuck? Europes Troubles to Exploit ICTs Productivity Potential Bart van Ark & Robert Inklaar University of Groningen and The Conference Board Presentation for EU KLEMS Public Session on The Determinants of Europes Productivity Revival 13 May 2005 Bank 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".

2 2 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 Maddisons 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 (OMahony and van Ark, 2003)

3 3 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 (OMahony and van Ark, 2003) and Inklaar, OMahony and TImmer (GD-68)

4 4 EU labour productivity and hours growth slowed further down since 2000 – and U.S. is in stronger lead

5 5 The slowdown is EU productivity growth is of a structural nature U.S. EU-15

6 6 Macro growth accounting

7 7 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)

8 8 The Impact of ICT on Economic Growth 1: investment channel 3: spillover channel ?? 2: technology channel © Erik Bartelsman/Jeroen Hinloopen

9 Slowdown in non-ICT capital and non-ICT TFP are major drivers of EU15 slowdown since 1995

10 Since 2000, ICT capital deepening slowed to pre-1995 levels, but U.S. shows acceleration in non-ICT TFP

11 Focus on market sector of economy accentuates EU4-US gap further

12 Pre-2000 leading ICT capital deepening for a small number of EU member states

13 Post-2000 slowdown of ICT capital deepening across the board

14 Post-2000 slowdown in TFP from ICT production bigger in U.S. than in EU countries

15 Since 2000 only UK, Sweden and US show improvement in non-ICT TFP, and Finland and Greece also remain high

16 Before 2000 no evidence of spillovers from ICT use to TFP

17 Development since 2000 are suggestive of the possibility of spillovers from ICT use to TFP

18 Alternative specifications show similar results

19 19 Sectoral Decomposition

20 Services industries are key to faster productivity growth in U.S. over Europe Contribution of major industry group to labour productivity growth of market economy, 1995-2003

21 Contributions of service industries is low across countries, except Sweden, UK, Greece and Ireland

22 Europes productivity advantage in telecommunication is gone but it remains mostly TFP driven

23 In retail trade US and UK show clear advantage over Germany, France and Netherlands; IT capital is limited

24 In business services, TFP growth in many European countries is strongly negative; IT is a big part of growth

25 U.S. shows acceleration of TFP growth in business services, but no further acceleration elsewhere

26 In Europe TFP growth in market services is slower and shows no acceleration

27 27 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

28 28 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?


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