Information Technology and the World Economy Article Analysis By Angel Garbarino

By: Dale W. Jorgenson Harvard University & Khuong Vu 2005 Jorgenson, Dale W., and Khuong Vu, “Information Technology and the World Economy,” Scandinavian Journal of Economics 107(4), 2005:631-650. By: Dale W. Jorgenson Harvard University & Khuong Vu 2005 9/18/2018

The Question? Analyze: The impact of investment in information technology (IT) equipment and software on the recent resurgence in world economic growth. 9/18/2018

Data World= Regions 1. 7 Regions Economies 2. G7 3. GD7 NOTE: World (110) Economies= the 7 regions 9/18/2018

G7 = Canada, France, Germany, Italy, Japan, the UK, and U.S. 7 REGIONS = Industrialized G7, non-G7, Developing Asia, Latin America, Eastern Europe and the Former Soviet Union, North Africa and the Middle East, and Sub-Saharan Africa. G7 = Canada, France, Germany, Italy, Japan, the UK, and U.S. GD7= Brazil, China, India, Indonesia, Mexico, Russian Federation, South Korea. 9/18/2018

World Economies= 110 with > mill. In pop. Complete set of national accounts for 1989-2003 =96% of world output Source: Penn World Table and World Bank Development Indicators (2004) 9/18/2018

-Double Digit IT investment growth after 1995 in G7 During 1989-2003 Break up into 2 periods 1. 1989-1995 2. 1995-2003 Why? -Double Digit IT investment growth after 1995 in G7 - Rate of Prices - Semiconductors 3 2 years 9/18/2018

Method Allocated growth of world output between input growth and productivity 1.GDP growth to GDP share and Growth share 1989-1995 vs. 1995-2003 2.Sources of output growth Capital (ICT, non-ICT) Labor (Hrs, quality) TFP 3. Levels of output & input per capita and production 1989, 1995, 2003 Output, Input, Productivity 9/18/2018

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Table 1~ Some points G7 <50% of world product 1989-2003 More Sources for data used: OECD (2002), Ark et al (2003, updated 2005), Jorgenson and Mothohasi (2005), Penn World Table (2002) and Young (2003). G7 <50% of world product 1989-2003 1995-2003 U.S. 21.8% world product and 48.2% of G7 U.S growth rate from 2.43% to 3.56% 9/18/2018

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Table 2~ Some Points National accounting data for labor and capital More Sources for Data used: Barro and Lee (2001) Kaufmann et al. (2004), the World Bank, and the Bureau of Economic Analysis (BEA). National accounting data for labor and capital IT = IT capital inputs / output Same for non-IT Labor Quality= labor input / hrs. worked Productivity = output – (capital + labor inputs) =Growth rate or ‘change in’ ICT= Information Communication Technology, here also = IT 9/18/2018

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Table 3~ Some Points Productivity= input/output U.S. =100 in 2000 Output gap between U.S. & G7 since 1995 Developing Asia, output PC 6 in 1989 8.5 in 1995 12.1 in 2003 9/18/2018

What has been the impact of IT investment since 1995 on world economic growth? “Our most astonishing finding is that input growth greatly predominates.” 9/18/2018

GDP GROWTH Developing Asia 60% prior and 40% after China responsible for 50% Eastern Europe and former Soviet Union during socialism transition, completely recovered 9/18/2018

IT GROWTH IT investment most important source of growth But, non-IT investments dominated Labor input next Before, quality After, hours worked Productivity, least important Except for Asian Miracle < 1995 9/18/2018

Regions: A closer look G7: IT investment In non-G7, Latin America, eastern Europe, Sub-Saharan Africa, and North Africa and Middle East: Labor input Productivity stagnant or in Latin America, Eastern Europe, Sub-Saharan Africa, and North Africa and the Middle East. 9/18/2018

Impact of IT investment All 7 regions in IT investment > 1995 Most significant on growth in G7 #1 U.S. Nxt. Developing Asia China Role of IT investment >1995 doubled for: Latin America, Eastern Europe, North Africa and Middle East, and Sub-Saharan Africa. 9/18/2018

Policy IT investment has been crucial to U.S economic growth, How has it been to others? A better understanding on the role of IT investment in global economic growth Future policy regarding IT investment This will help Angel on her Research Paper 9/18/2018

Evaluation Interesting question (+) Read, Difficult to (-) Ex: Never defined non-G7 Ex: introduced definitions in tables “GD7” 9/18/2018

Ex: Only includes IT investment on software and equipment Never addressed counterarguments or the scope of their analysis (-) Ex: That ICT had other growth spurts during in 1995-2003, not included in “resurgence” Ex: Only includes IT investment on software and equipment 9/18/2018

Interesting approach (+) Ex: breaking down Capital into ICT and non-ICT Hard to analyze, use other’s data (-) Ex: How did they derive theirs? Language? Ex: …that input growth greatly predominates! (Abstract, +2x) 9/18/2018

All is subject to Change How? 1. Literature Survey: On Information Technology Prices and Economic Growth Issues: IT boom since 1990s theory Price relative to other factors (infrastructure, government policies, trade liberalization) Price changes experienced differently throughout the world All is subject to Change 9/18/2018