1. INFORMATION AND DIGITAL ECONOMICS(5ECON007W)
The ‘New’ Economy:
Reality or illusion?

2. The OECD ‘Growth Project’ (1999-2001)
The OECD ‘confirmed’ that there was a ‘New Economy’ in the 1990s; however, only about 20% of OECD experienced an increase in growth rates.
Innovation and technological change, particularly ICT = the main drivers of economic growth.

3. The OECD ‘Growth Project’ (1999-2001)
“in the structure of the OECD economies…crucially, ICT seems to have facilitated productivity-enhancing changes in the firm, in both new and traditional industries”
(OECD, 2001)

4. What is the ‘New’ Economy?
A process of transformation or structural change in the world economy from the late 1990s, based around:
The globalisation of business
The revolution in information and communication technology (ICT)

5. ‘Globalisation’ of business
Dominance of capitalism and the market
Deregulation of trade and capital flows
Greater openness of countries to international trade and investment
Increased global ‘reach’ of companies, with changes in organisational structure

6. The revolution in ICT A technological breakthrough in the mid-1990s
the semi-conductor manufacturing industry shifted from a 3-year to 2-year product cycle.
An increase in network computing
based on the widespread diffusion of the Internet.
The improvement in productivity in the US economy from the mid-1990s

7. Measuring the ‘New’ Economy
ICT as both
an output from the ICT-producing industries
an input into the ICT-using industries.

8. Measuring the ‘New’ Economy
Share of ICT industries in total output, trade, employment and R&D.
In 1997, ICT industries accounted for 3-4% of employment, 6-9% of value-added, 10-25% of exports and 25-40% of R&D expenditures in USA, Japan and EU
Use of ICT
measured as ratio of ICT spending to GDP or total output/expenditure). Closely correlated to level of income.
Size of the Internet
numbers on-line
Measuring the ‘New’ Economy

9. IT Industries as share of GDP (%) in US and EU, 2000
IT Producers
Manufacturing
1.6
2.6
Services
4.3
4.7
IT Users
5.9
21.1
26.3
Non-IT Industries
67.1
62.1

10. Technical progress and productivity
Technological improvements
Computers
improved transport methods
improved communications
has caused capital productivity to rise over time.

11. Technical progress and productivity
Increase in human capital
improved education, training, skills
better health
has caused labour productivity to increase.

12. US Computer Price Index, 1959-1999 (Source: Jorgenson, 2001)
Between 1959 & 1964 prices dropped by 66%.
1959
Between 1984 & 1999 prices dropped by 92%.
1964
1969
1974
1979
1984
1989
1994
1999

13. ICT and productivity growth in the US Economy
Has IT provided a temporary boost or a permanent improvement in US growth prospects?
Rapid decline in IT prices
strong incentive for substitution for (other) capital and labour inputs.

14. ICT and productivity growth in the US Economy
Faster economic growth rates after mid- 1990s.
productivity growth in IT-producing industries and IT-using industries.
At firm level, investment in IT goods led
to rising productivity,
IF accompanied by organisational change and business strategy.

15. Productivity growth (% pa) in the EU and US
Total
Economy
1.9
1.4
1.1
2.5
ICT Producers
6.7
8.7
8.1
10.1
ICT Using
1.7
1.6
1.5
4.7
Non-ICT
0.7
0.2
0.5
Productivity defined as value added per person employed

16. 86% with Broadband access
National Statistics (

17. The ‘Digital Divide’ (2000): indicators by region (%)
Pop
GDP
Phone Lines
Cell phones
PCs
Inter-net hosts
TVs
Africa 10 1
<1 2
Asia/
Pacific 56 25 31 33 23 8 43
Europe 15 32 35 37 30 14 26
Middle East 5 3
America 38 28 44 78
WORLD
100

18. Share of ICT-producing activities in the business sector (2000) (Source: OECD)

19. International Salary Differences for Software Professionals, 2003 (indices)
Switzerland UK
Greece
India
Project Leader
100 52 32 31
Systems Analyst 51 20 19
Database Analyst 39 25
Test Engineer 40 22 14

20. The‘digital divide’: an alternative view
‘(Yet) the debate over the ‘digital divide’ is founded on a myth – that plugging poor countries into the Internet will help them become rich rapidly’ (The Economist, 12th March 2005)
The ‘digital divide’ as a symptom of deeper, more important divides: of income, development & literacy. Treat causes, not symptoms.
How best to use technology to promote ‘bottom-up’ development? – promote spread of mobile phones, not PCs and Internet (UN has target of 50% mobile

21. World Internet and Mobile Phone usage, 2006
Region
Population
Internet penetration (mobile penetration)
Usage growth
Africa
14.1%
3.6% (18%)
+625.8%
Asia
56,4%
10.8% (24%)
+245.5%
Europe
12.4%
38.2% (85%)
+193.7%
Middle East
2.9%
10.0% (38%)
+479.3%
N. America
5.1%
69.1% (74%)
+112.0%
LA/Caribbean
8.5%
15.1% (46%)
+361.4%
Oceania/Aus
0.5%
54.1%
+141.0%
WORLD
100%
16.7% (40%)
+220.9%
Sources: Internet usage from Neilsen/Net Ratings & ITU; Mobile penetration from GSMA

22. Mobile phones and development
Waverman et al (2005) found that in a ‘typical’ developing country an increase of 10 mobile phones per hundred people, boosts GDP growth by 0.6% (twice as big an impact as in rich countries).
Mobiles cut transaction costs, broaden trade networks and reduce need for costly physical transport.
Policy priorities? Education, healthcare and regulatory policies favouring competition, plus lower taxes on network access & cheaper handsets