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Long term implications of the ICT revolution: Applying the lessons of growth theory and growth accounting

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  • Oulton, Nicholas

Abstract

How big a boost to long run growth can countries expect from the ICT revolution? I use the results of growth accounting and the insights from a two-sector growth model to answer this question. A two-sector rather than a one-sector model is required because of the very rapid rate at which the prices of ICT products have fallen in the past and are expected to fall in the future. According to the two-sector model, the main boost to growth comes from ICT use, not ICT production. Even a country with zero ICT production can benefit via improving terms of trade. I quantify this effect for 15 European and 4 non-European countries, using the EU KLEMS database. The ICT intensity of production (the ICT income share) is much lower in many European countries than it is in the United States or Sweden. Nevertheless the contribution to long run growth stemming from even the current levels of ICT intensity is substantial: about half a per cent per annum on average in these 19 countries. If ICT intensity reached the same level as currently in the U.S. or Sweden, this would add a further 0.2 percentage points per annum to long run growth.

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Bibliographic Info

Article provided by Elsevier in its journal Economic Modelling.

Volume (Year): 29 (2012)
Issue (Month): 5 ()
Pages: 1722-1736

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Handle: RePEc:eee:ecmode:v:29:y:2012:i:5:p:1722-1736

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Web page: http://www.elsevier.com/locate/inca/30411

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Keywords: Potential output; Productivity; ICT; Two-sector model; Growth accounting; Terms of trade;

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Cited by:
  1. Crafts, Nicholas & O’Rourke, Kevin Hjortshøj, 2014. "Twentieth Century Growth*This research has received funding from the European Research Council under the European Union’s Seventh Framework Programme (FP7/2007-2013) / ERC grant agreement no. 249546," Handbook of Economic Growth, in: Handbook of Economic Growth, edition 1, volume 2, chapter 6, pages 263-346 Elsevier.
  2. Nicholas Oulton, 2010. "Long Term Implications of the ICT Revolution: Applying the Lessons of Growth Theory and Growth Accounting," CEP Discussion Papers dp1027, Centre for Economic Performance, LSE.
  3. Nicholas Oulton, 2013. "Medium and Long Run Prospects for UK Growth in the Aftermath of the Financial Crisis," CEP Occasional Papers 37, Centre for Economic Performance, LSE.

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