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The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?

Author

Listed:
  • Eric Bartelsman

    (Department of Econometrics [Amsterdam] - UvA - University of Amsterdam [Amsterdam])

  • Andrea Bassanini

    () (ERMES - Equipe de recherche sur les marches, l'emploi et la simulation - UP2 - Université Panthéon-Assas - CNRS - Centre National de la Recherche Scientifique, CEPN - Centre d'Economie de l'Université Paris Nord (ancienne affiliation) - UP13 - Université Paris 13 - CNRS - Centre National de la Recherche Scientifique)

  • John Haltiwanger

    (department of economics)

  • Ron Jarmin

    (census bureau - census bureau)

  • Stefano Scarpetta

    (ECO - Economics Department - OCDE)

  • Thorsten Schank

    (department of economics - University of Erlangen)

Abstract

The economic performance of some OECD countries over the past decade, most notably the United States, has renewed the interest of analysts and policy makers on economic growth and on how policy can eventually support it. This report sheds some light on this issue by relying on harmonised macro and sectoral data for OECD countries and a unique cross-country firm-level dataset. This allows to address a number of issues. What are the key factors explaining differences in output and productivity performances across OECD countries? What is the role of ICT-producing industry and the ICT-driven capital deepening in explaining the different growth patterns of countries? Does the adoption of IC technologies require organisational changes and/or changes in the composition of inputs? What is the contribution of new firms to overall productivity growth in general and in ICT-related sectors? Do ICT-industries show stronger firm and employment turnover rates? Is there any relationship between the spread of ICT and institutional features of the product and labour markets? For example, do stringent regulations on start-ups (as well as those affecting incumbents) affect the diffusion of ICT? Do differences in labour market policy and institutions explain different patterns of adoption of new technologies?Macro data clearly point to widening disparities in growth performance across the OECD countries, even on the basis of cyclically-adjusted series. These disparities are related to differences in labour utilisation rather than to widening differences in labour productivity growth rates: i.e. higher growth rates in output per capita observed in a number of countries have been accompanied by improvements in the utilisation of labour, while sluggish employment in others (mainly in continental Europe) have not been fully compensated by higher labour productivity growth, thereby leading to a further slowdown in output growth. However, observed changes in growth patterns in some countries are also the result of the information and communication technology (ICT) revolution. In particular, it is argued that those countries that have developed an ICT-producing industry -- and/or where other industries have been quick in adopting highly productive ICT equipment -- have been able to shift to higher output and productivity growth paths. In this respect, the United States and some smaller countries (e.g. Australia, Ireland) have benefited the most from this ICT revolution, while most large European economies are still lagging behind. The sectoral and micro analysis also reveals important cross-country differences. The U.S. economy seems to be better able to acquire comparative advantage in rapidly growing ICT market segments than most of its trading partners. At the micro level, there seems to be a different degree of "market experimentation" in the United States compared with Europe, even if aggregate firm turnover rates are similar. The findings suggest that in the U.S. new firms tend to be smaller (relative to average incumbent) and less productive when compared with their European counterparts, but, if successful, they also tend to grow much more rapidly.The micro evidence reported in the paper offers additional elements in our discussion of a growth-enhancing policy setting. Our results seem to suggest that certain institutional and regulatory settings may reduce the degree of market experimentation of new firms. This, in turn, could lower the speed with which a country shifts to a new technology, thereby offering an interpretation to the observed differences in innovation and adoption across the Atlantic. For example, low administrative costs of start-ups and not unduly strict regulations on labour adjustments in the United States, may stimulate potential entrepreneurs to start on a small scale, test the market and, if successful with their business plan, expand rapidly to reach the minimum efficient scale. In contrast, higher entry and adjustment costs in Europe may stimulate a pre-market selection of business plans with less market experimentation. Our econometric results lend some support to these considerations. By using pooled data (country, industry and time) we find that stringent regulatory settings in the product and labour markets contribute to hinder innovation activity and the adoption of leading technologies.

Suggested Citation

  • Eric Bartelsman & Andrea Bassanini & John Haltiwanger & Ron Jarmin & Stefano Scarpetta & Thorsten Schank, 2002. "The Spread of ICT and Productivity Growth: Is Europe Really Lagging Behind in the New Economy?," CEPN Working Papers halshs-00289168, HAL.
  • Handle: RePEc:hal:cepnwp:halshs-00289168
    Note: View the original document on HAL open archive server: https://halshs.archives-ouvertes.fr/halshs-00289168
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    References listed on IDEAS

    as
    1. Garcia Pascual, Antonio & Westermann, Frank, 2002. "Productivity Convergence in European Manufacturing," Review of International Economics, Wiley Blackwell, vol. 10(2), pages 313-323, May.
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    Cited by:

    1. Robert J. Gordon, 2004. "Five Puzzles in the Behavior of Productivity, Investment, and Innovation," NBER Working Papers 10660, National Bureau of Economic Research, Inc.
    2. Esben Andersen & Jacob Holm, 2014. "The signs of change in economic evolution," Journal of Evolutionary Economics, Springer, vol. 24(2), pages 291-316, April.
    3. John Martin & Stefano Scarpetta, 2012. "Setting It Right: Employment Protection, Labour Reallocation and Productivity," De Economist, Springer, vol. 160(2), pages 89-116, June.
    4. Tomi Kyyrä & Mika Maliranta, 2008. "The micro-level dynamics of declining labour share: lessons from the Finnish great leap ," Industrial and Corporate Change, Oxford University Press, vol. 17(6), pages 1147-1172, December.
    5. Wolfgang Lechthaler, 2011. "Firm Training and Capital Taxation," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 167(2), pages 175-201, June.
    6. Robert J. Gordon, 2003. "Hi-tech Innovation and Productivity Growth: Does Supply Create Its Own Demand?," NBER Working Papers 9437, National Bureau of Economic Research, Inc.
    7. Simon Porcher, 2013. "Regulation and ICT capital input: empirical evidence from 10 OECD countries," Chapters,in: Governance, Regulation and Innovation, chapter 7, pages 182-196 Edward Elgar Publishing.
    8. Kapás, Judit & Czeglédi, Pál, 2008. "Technológiai és intézményi változások a munkapiacon és a vállalati szervezetben. Nyugat- és kelet-közép-európai összehasonlítás
      [Technological and institutional changes on the labour market and in
      ," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(4), pages 308-332.
    9. Gordon, Robert J., 2005. "Pourquoi, pendant que la locomotive de la productivité se mettait en branle aux États-Unis, l’Europe est-elle restée en gare," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 47-74, Mars-Juin.
    10. Fabrizio Colonna & Giulia Giupponi, 2015. "Why do firms hire on a fixed-term basis? Evidence from longitudinal data," Questioni di Economia e Finanza (Occasional Papers) 297, Bank of Italy, Economic Research and International Relations Area.
    11. Judit KAPà S & Pál CZEGLÉDI, 2007. "What Does Transition Mean?: Post-socialist and Western European Countries Paralleled," The Journal of Comparative Economic Studies (JCES), The Japanese Society for Comparative Economic Studies (JSCES), vol. 3, pages 3-28, December.
    12. Robert J. Gordon, 2004. "Why was Europe Left at the Station When America's Productivity Locomotive Departed?," NBER Working Papers 10661, National Bureau of Economic Research, Inc.
    13. Esben Sloth Andersen & Jacob Rubæk Holm, 2013. "Directional, stabilizing and disruptive selection: An analysis of aspects of economic evolution based on Price’s equation," DRUID Working Papers 13-10, DRUID, Copenhagen Business School, Department of Industrial Economics and Strategy/Aalborg University, Department of Business Studies.
    14. Atanas Leonidov, 2004. "New Tendencies in the Economic Growth of EC and USA: Comparative Analysis," Economic Studies journal, Bulgarian Academy of Sciences - Economic Research Institute, issue 2, pages 3-29.
    15. R. Nahuis & H. van der Wiel, 2005. "How Should Europe’s ICT Ambitions look like? An Interpretative Review of the Facts," Working Papers 05-22, Utrecht School of Economics.
    16. Murphy, Gavin & Siedschlag, Iulia & McQuinn, John, 2012. "Employment Protection and Innovation Intensity," Papers WP445, Economic and Social Research Institute (ESRI).
    17. Atrostic, Barbara K. & Boegh-Nielsen, Peter & Motohashi, Kazuyuki & Nguyen, Sang, 2005. "Technologies de l’information, productivité et croissance des entreprises : résultats basés sur de nouvelles microdonnées internationales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 81(1), pages 255-279, Mars-Juin.
    18. Kyyrä, Tomi & Maliranta, Mika, 2006. "The Micro-level Dynamics of Declining Labour Share: Lessons from Finnish Great Leap," Discussion Papers 1049, The Research Institute of the Finnish Economy.
    19. Jacob Holm, 2014. "The significance of structural transformation to productivity growth," Journal of Evolutionary Economics, Springer, vol. 24(5), pages 1009-1036, November.
    20. Andrea Bassanini & Luca Nunziata & Danielle Venn, 2009. "Job protection legislation and productivity growth in OECD countries," Economic Policy, CEPR;CES;MSH, vol. 24, pages 349-402, April.
    21. Gianluca Grimalda, 2016. "Can labour market rigidity foster economic efficiency? A model with non-general purpose technical change," Eurasian Business Review, Springer;Eurasia Business and Economics Society, vol. 6(1), pages 79-99, April.
    22. Wojciech Szewczyk & Anna Sabadash, 2013. "Macroeconomic Modelling of Public Expenditures on Research and Development in Information and Communication Technologies," JRC Working Papers JRC82943, Joint Research Centre (Seville site).
    23. Andrea Bassanini & Danielle Venn, 2008. "The Impact of Labour Market Policies on Productivity in OECD Countries," International Productivity Monitor, Centre for the Study of Living Standards, vol. 17, pages 3-15, Fall.
    24. Richard Dion & Robert Fay, 2008. "Understanding Productivity: A Review of Recent Technical Research," Discussion Papers 08-3, Bank of Canada.

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