Information Technology's Impacts on Productivity, Welfare and Social Change: Second Version

There has been a rapid increase in global expenditure on information technology and there is still much to learn about its effects on productivity, welfare and social change. At the macro-level, it has been estimated that Internet-related value accounts for as much as 7% of GDP of some OECD economies. As discussed, two basic methods have been used to estimate the contribution of ICT to the growth in GDP and labour productivity. Estimates of these vary considerably but it seems that the consensus is that ICT’s contribution is positive. However, whether it is increasing is disputed. Currently, GDP is expected by some economists to increase by about 1% for a 10% rise in ICT-capital. All industries have had added value as a result of the introduction of ICT but the overall aggregate effect is largest for the tertiary (service) sector. It is shown how the Internet can increase economic productivity (1) by reducing input costs and (2) raising allocative efficiency within enterprises. Other ways in which Internet access can increase economic welfare are via reduced market transaction costs and a decline in material and transport costs as well as by increasing the variety of available commodities. These aspects are analyzed and discussed critically. Attention is also given to the employment consequences of the use of ICT, associated health issues, and the impacts of ICT on social interaction and the environment. It is suggested that the use of the Internet for consumption may exceed it use for production. Additional matters touched on are the consequences for economic performance of ICT in education and research and in the health industry, as well as the comparative benefit of ICT to rural residents compared to city-dwellers. In conclusion, it is noted that not all IT depends on the Internet and that non-Internet IT has had little economic attention.