IDEAS home Printed from https://ideas.repec.org/p/bwu/eiiwdp/disbei215.html
   My bibliography  Save this paper

True Investment-GDP Ratio in a World Economy with Investment in Information & Communication Technology

Author

Listed:
  • Paul J.J. Welfens

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

  • Toni Irawan

    (Department of Economics, Bogor Agricultural University (IPB), Bogor, Indonesia International Center for Applied Finance and Economics Bogor Agricultural University (IPB), Bogor, Indonesia)

  • Jens K. Perret

    (Europäisches Institut für Internationale Wirtschaftsbeziehungen (EIIW))

Abstract

The nominal investment-GDP ratio is playing a key role in the economic debate in the US and in the EU. However, this analysis is largely misleading as a rising share of overall investment is in the form of ICT investment: The price of ICT investment goods has been falling for decades so that it is adequate to consider the "real effective" investment-GDP ratio calculated on the basis of real ICT investment relative to real GDP. The gap between the two ratios is about 3-6 percentage points for the USA and Germany, and indeed some other EU countries, so that effective investment-GDP ratios in both the United States and Germany are seriously underestimated if nominal-GDP ratios are used - as the DIW, Berlin, did for Germany and other EU countries. There are, of course, critical implications for the debate about how large the investment gap is in Germany, France, Italy, Spain and other countries; this analysis is also highly relevant for the issue of overcoming slow growth and high unemployment rates. As regards Germany, there is only a small private investment gap, while that gap is much larger in Italy and Spain - judging by the real effective investment ratio of 2007 compared to the previous periods. In countries where the real effective investment-output ratio is quite different from the nominal investment-GDP ratio, the implication is that the savings rate and the current account position in the uses side of GDP in the System of National Accounts also need to be recalculated. The IMF should take the new methodology into account for the debate about international current account imbalances.

Suggested Citation

  • Paul J.J. Welfens & Toni Irawan & Jens K. Perret, 2016. "True Investment-GDP Ratio in a World Economy with Investment in Information & Communication Technology," EIIW Discussion paper disbei215, Universitätsbibliothek Wuppertal, University Library.
  • Handle: RePEc:bwu:eiiwdp:disbei215
    as

    Download full text from publisher

    File URL: https://eiiw.wiwi.uni-wuppertal.de/fileadmin/eiiw/Daten/Publikationen/Gelbe_Reihe/disbei215.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Paul Welfens & Jens Perret, 2014. "Information & communication technology and true real GDP: economic analysis and findings for selected countries," International Economics and Economic Policy, Springer, vol. 11(1), pages 5-27, February.
    2. Guido Baldi & Ferdinand Fichtner & Claus Michelsen & Malte Rieth, 2014. "Schwache Investitionen dämpfen Wachstum in Europa," DIW Wochenbericht, DIW Berlin, German Institute for Economic Research, vol. 81(27), pages 637-651.
    3. Bretschger, Lucas & Hettich, Frank, 2002. "Globalisation, capital mobility and tax competition: theory and evidence for OECD countries," European Journal of Political Economy, Elsevier, vol. 18(4), pages 695-716, November.
    4. Mr. Chris Papageorgiou & Mr. Subir Lall & Ms. Florence Jaumotte, 2008. "Rising Income Inequality: Technology, or Trade and Financial Globalization?," IMF Working Papers 2008/185, International Monetary Fund.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Paul Welfens, 2014. "Issues of modern macroeconomics: new post-crisis perspectives on the world economy," International Economics and Economic Policy, Springer, vol. 11(4), pages 481-527, December.
    2. David Hanrahan, 2021. "Digitalization as a Determinant of Tax Revenues in OECD Countries: A Static and Dynamic Panel Data Analysis," Athens Journal of Business & Economics, Athens Institute for Education and Research (ATINER), vol. 7(4), pages 321-348, October.
    3. Dani Rodrik, 2018. "Populism and the economics of globalization," Journal of International Business Policy, Palgrave Macmillan, vol. 1(1), pages 12-33, June.
    4. Orsetta Causa & Alain de Serres & Nicolas Ruiz, 2015. "Can pro-growth policies lift all boats?: An analysis based on household disposable income," OECD Journal: Economic Studies, OECD Publishing, vol. 2015(1), pages 227-268.
    5. Cysne, Rubens Penha & Turchick, David, 2012. "Equilibrium unemployment-inequality correlation," Journal of Macroeconomics, Elsevier, vol. 34(2), pages 454-469.
    6. Areendam Chanda & Beatrice Farkas, 2009. "Technology-Skill Complementarity and International TFP Differences," DEGIT Conference Papers c014_028, DEGIT, Dynamics, Economic Growth, and International Trade.
    7. Mr. Murtaza H Syed & Mr. Ravi Balakrishnan & Mr. Chad Steinberg, 2013. "The Elusive Quest for Inclusive Growth: Growth, Poverty, and Inequality in Asia," IMF Working Papers 2013/152, International Monetary Fund.
    8. Donatella, Baiardi & Claudio, Morana, 2015. "Financial deepening and income distribution inequality in the euro area," Working Papers 316, University of Milano-Bicocca, Department of Economics, revised 04 Dec 2015.
    9. Rafal Kierzenkowski & Isabell Koske, 2012. "Less Income Inequality and More Growth – Are they Compatible? Part 8. The Drivers of Labour Income Inequality – A Literature Review," OECD Economics Department Working Papers 931, OECD Publishing.
    10. Jordan Brennan, 2013. "The Power Underpinnings, and Some Distributional Consequences, of Trade and Investment Liberalisation in Canada," New Political Economy, Taylor & Francis Journals, vol. 18(5), pages 715-747, October.
    11. McCloud, Nadine & Delgado, Michael S. & Holmes, Chanit'a, 2018. "Does a stronger system of law and order constrain the effects of foreign direct investment on government size?," European Journal of Political Economy, Elsevier, vol. 55(C), pages 258-283.
    12. José Antonio Alonso, 2018. "International tax cooperation and sovereign debt crisis resolution: reforming global governance to ensure no one is left behind," CDP Background Papers 041, United Nations, Department of Economics and Social Affairs.
    13. Brennan, Jordan, 2013. "The Power Underpinnings, and Some Distributional Consequences, of Trade and Investment Liberalisation in Canada (Preprint)," EconStor Open Access Articles and Book Chapters, ZBW - Leibniz Information Centre for Economics, pages 715-747.
    14. Rod Tyers & Yixiao Zhou, 2020. "US–China rivalry: The macro policy choices," The World Economy, Wiley Blackwell, vol. 43(9), pages 2286-2314, September.
    15. Molana, Hassan & Montagna, Catia, 2006. "Aggregate scale economies, market integration, and optimal welfare state policy," Journal of International Economics, Elsevier, vol. 69(2), pages 321-340, July.
    16. Stephanie Meinhard & Niklas Potrafke, 2012. "The Globalization–Welfare State Nexus Reconsidered," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 271-287, May.
    17. Paul Welfens, 2016. "Overcoming the euro crisis and prospects for a political union," International Economics and Economic Policy, Springer, vol. 13(1), pages 59-103, January.
    18. Valerie Vandermeulen & Werner Roeger, 2021. "Trend Capital when Goods and Capital Market Frictions Exist," European Economy - Discussion Papers 2015 - 145, Directorate General Economic and Financial Affairs (DG ECFIN), European Commission.
    19. Mr. Martin Petri & Mr. Antonio David, 2013. "Inclusive Growth and the Incidence of Fiscal Policy in Mauritius: Much Progress, But More Could be Done," IMF Working Papers 2013/116, International Monetary Fund.
    20. Cal Le Gall & Corentin Poyet, 2017. "The effect of supranational economic constraints on MPs issue attention: the case of France," Post-Print hal-01542581, HAL.

    More about this item

    Keywords

    Macroeconomics; Investment; ICT; Employment; Imbalances;
    All these keywords.

    JEL classification:

    • L63 - Industrial Organization - - Industry Studies: Manufacturing - - - Microelectronics; Computers; Communications Equipment
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • L96 - Industrial Organization - - Industry Studies: Transportation and Utilities - - - Telecommunications
    • R11 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Regional Economic Activity: Growth, Development, Environmental Issues, and Changes

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bwu:eiiwdp:disbei215. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: . General contact details of provider: http://elpub.bib.uni-wuppertal.de .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Frank Hoffmann (email available below). General contact details of provider: http://elpub.bib.uni-wuppertal.de .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.