From the empirical evidence analyzed in this literature review it seems quite safe to conclude that ICT had a major role in the U.S. productivity acceleration observed in the period 1995-2005, both in terms of TFP growth in ICT-producing sectors and capital-deepening in ICT-using sectors. The evidence for Europe is less clear-cut, as some countries such a Sweden and Finland took full advantage of the opportunities offered by digital technologies, while others, such as Germany, France, Italy and, to a lesser extent, the UK, did not. We can also conclude that ICT is largely responsible for the divergence in productivity paths observed between 1995 and 2005 for the U.S. and the E.U. After 2005 we also notice a slowdown in U.S. labour productivity growth, which reduces the E.U.-U.S. productivity gap and hence the role of ICT (van Ark, 2010).
The lack of a E.U. productivity acceleration between 1995 and 2005 can be partially explained by a lower size of the ICT producing industry in Europe, by lower investment in ICT capital, but, especially, by lower TFP within the ICT-producing sector (two times higher in the U.S.) and by lower TFP in the ICT-using sectors, particularly in the service industry, which is three times higher in the U.S., where productivity has been going up particularly in wholesale, trade, and finance.137 A possible explanation for this is that E.U. firms in these services industries have not been able to reap to full benefits of computerization, in part because they invested less into it but mostly because they have not used it in the most effective way.
The previous conclusions, which are mostly based on studies grounded in the growth-accounting tradition, are broadly confirmed by the studies that use regression methods with aggregate data. However, to fully understand what determines the impact of ICT investment in ICT-using sectors (i.e. the indirect effects of ICT), granular data are necessary and firm and plant level data show that ICT produces its highest returns when firms prepare themselves properly to the new technology, both in terms of acquiring the necessary skills and adapting the organizational structure as to benefit from
135 The results are not immediately comparable with those of Czernich et al. (2009), given that in that study the dependent variable is per-capita GDP, while here it is GDP.
136 Notice that a penetration rate higher of 30% effectively means that more than half of the population has access to broadband. In 2006 only Scandinavian countries satisfied this condition. However, as time passes by, more and more countries will reach the 30% threshold.
the technological opportunities. This result is taken as evidence in favour of the hypothesis that ICT positively complement organizational and human capital.
We also notice that the studies reviewed here document that, within the E.U., there is large across- country variation in the impact of ICT on productivity (with the UK behaving more similarly to the U.S.). Variables capturing the extent of product and, especially, labour market regulation account for most of such variation, indicating that the impact of ICT on productivity is lower in more regulated markets (the evidence for product market regulation is less strong than the one for labour market regulation), and this could explain why the impact in ICT-using industries has been lower in the E.U. than in the U.S. (product and labour market regulation in services is higher in the E.U. than in the U.S.). However, these effects are generally not robust to the introduction of firm-specific fixed effects (which make it difficult to derive evidence-based policy implications).
One of the most relevant policy issues is whether ICT can be defined as a GPT, which is a technology that stimulates co-inventions and product, process and organizational innovations. While the evidence gathered from industry-level data is not conclusive, the evidence from firm and plant- level data seem to point consistently to the presence of spillover and external effects generated by ICT capital (at the industry or aggregate level). The fact that these spillovers and externalities are found more easily with more granular data is consistent with the intuition that, at a lower level of aggregation, we are more likely to have external factors affecting firms’ performance (in the limiting case of country-level data the spillovers can come only from outside the country). This means that there might be room for public polices supporting investment in ICT, and even more for policies supporting R&D in the ICT sector, as in this case we have two types of externalities, one related to ICT capital and the other one related to R&D capital.. Moreover, van Reenen et al. (2010) find that ICT investment respond faster to demand shock than other forms of capital, which implies that programs stimulating ICT investment might be beneficial for counter-cycle policies. Given the evidence of strong complementarities between ICT, organizational capital and human capital, barriers to the accumulation of these complementary factors should be removed, in particular, those affecting people management and decentralisation. In particular, van Reenen et al. (2010) stress the need for more competition in the product market and, especially, of less stringent labour market regulations.138 In our opinion, the role of rigidities in the labour market might be more complex. On the one hand they are on obstacle to firms’ restructuring, but, on the other one, they also might induce workers to invest more on firm-specific human capital, which might have the effect of making managerial innovation more productive.
There is also evidence that organizational change and ICT investment, especially when taken together, constitute a relevant financial and economic burden for firms. To the extent that investment in organizational restructuring entails some sunk costs, (small) firm size and market segmentation tend to reduce the scope for managerial restructuring. Given that the vast majority of firms in the E.U. are SMEs and given that access to capital for them is generally more costly, we are not very surprised to find that E.U. firms are less ready to invest in ICT and implement the necessary organization changes. The existence of market failures in the access to funding might
138 Some studies –not reviewed here- show that aggregate productivity depends heavily on reallocation (i.e. on exit by less productive firms and on entry and growth by more productive firms). These results are important from a policy perspective, as they show that reductions in barriers to entry and exit can have a strong impact on aggregate productivity.
justify some public intervention specifically directed at supporting ICT investment by SMEs. Also, it might be worthwhile thinking of raising awareness, especially among SMEs, of the potential benefits arising from the combination of ICT, people management and decentralization.
Broadband infrastructures have a strong impact on productivity and productivity growth. Moreover, there seem to be evidence that a critical mass in terms of broadband penetration (between 50 and 75% of the population) exists. Past these levels, the impact on GDP is still dependent on the path of broadband penetration. Hence policies need to be targeted to the development of broadband penetration in each country.