IDEAS home Printed from https://ideas.repec.org/p/fip/fedgfe/2017-15.html
   My bibliography  Save this paper

ICT Services and their Prices: What do they tell us about Productivity and Technology?

Author

Abstract

This paper reassesses the link between ICT prices, technology, and productivity. To understand how the ICT sector could come to the rescue of a whole economy, we extend a multi-sector model due to Oulton (2012) to include ICT services (e.g., cloud services) and use it to calibrate the steady-state contribution of the ICT sector to growth in aggregate U.S. labor productivity. Because ICT technologies diffuse through the economy increasingly via purchases of cloud and data analytic services that are not fully accounted for in the standard narrative on ICT's contribution to economic growth, the contribution of ICT to growth in output per hour going forward is found to be substantially larger than generally thought--1.4 percentage points per year. One reason why the estimated contribution is so large is that official ICT asset prices are found to substantially understate the productivity of the sector. The model developed in this paper also has implications for the relationship between prices for ICT services and prices for the capital stocks (i.e., ICT assets) used to supply them. In particular, ICT service prices may diverge from asset prices and capture productivity gains from ICT asset management by the sector.

Suggested Citation

  • David M. Byrne & Carol Corrado, 2017. "ICT Services and their Prices: What do they tell us about Productivity and Technology?," Finance and Economics Discussion Series 2017-015, Board of Governors of the Federal Reserve System (U.S.).
    • Handle: RePEc:fip:fedgfe:2017-15
    DOI: 10.17016/FEDS.2017.015r1
    as

    Download full text from publisher

    File URL: https://www.federalreserve.gov/econres/feds/files/2017015r1pap.pdf
    File Function: (Revision)
    Download Restriction: no
    File URL: https://www.federalreserve.gov/econresdata/feds/2017/files/2017015pap.pdf
    File Function: (Original)
    Download Restriction: no
    File URL: https://libkey.io/10.17016/FEDS.2017.015r1?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Jaison R. Abel & Ernst R. Berndt & Alan G. White, 2007. "Price Indexes for Microsoft," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 269-289, National Bureau of Economic Research, Inc.
    2. Basu, Susanto & Fernald, John G. & Shapiro, Matthew D., 2001. "Productivity growth in the 1990s: technology, utilization, or adjustment?," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 55(1), pages 117-165, December.
    3. David M. Byrne, 2015. "Prices for Data Storage Equipment and the State of IT Innovation," FEDS Notes 2015-07-01, Board of Governors of the Federal Reserve System (U.S.).
    4. David Byrne & Carol Corrado & Daniel Sichel, 2020. "The Rise of Cloud Computing: Minding Your Ps, Qs and Ks," NBER Chapters, in: Measuring and Accounting for Innovation in the Twenty-First Century, pages 519-551, National Bureau of Economic Research, Inc.
    5. Erik Brynjolfsson & Lorin M. Hitt, 2003. "Computing Productivity: Firm-Level Evidence," The Review of Economics and Statistics, MIT Press, vol. 85(4), pages 793-808, November.
    6. David M. Byrne & Carol Corrado & Daniel E. Sichel, 2017. "Own-Account IT Equipment Investment," FEDS Notes 2017-10-04-2, Board of Governors of the Federal Reserve System (U.S.).
    7. Berndt, Ernst R. & Fuss, Melvyn A., 1986. "Productivity measurement with adjustments for variations in capacity utilization and other forms of temporary equilibrium," Journal of Econometrics, Elsevier, vol. 33(1-2), pages 7-29.
    8. Ernst R. Berndt & Neal J. Rappaport, 2001. "Price and Quality of Desktop and Mobile Personal Computers: A Quarter-Century Historical Overview," American Economic Review, American Economic Association, vol. 91(2), pages 268-273, May.
    9. David M. Byrne & Carol Corrado, 2015. "Recent Trends in Communications Equipment Prices," FEDS Notes 2015-09-29, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Banal-Estanol, Albert & Seldeslachts, Jo & Vives, Xavier, 2022. "Ownership Diversification and Product Market Pricing Incentives," CEPR Discussion Papers 17686, C.E.P.R. Discussion Papers.
    2. Cecilia Jona-Lasinio & Stefano Schiavo & Klaus Weyerstrass, 2019. "How to revive productivity growth?," EconPol Policy Reports 13, ifo Institute - Leibniz Institute for Economic Research at the University of Munich.
    3. Terry Gregory & A.M. Salomons & Ulrich Zierahn, 2016. "Racing With or Against the Machine? Evidence from Europe," Working Papers 16-05, Utrecht School of Economics.
    4. Barth, Erling & Davis, James C. & Freeman, Richard B. & McElheran, Kristina, 2023. "Twisting the demand curve: Digitalization and the older workforce," Journal of Econometrics, Elsevier, vol. 233(2), pages 443-467.
    5. Tomaso Duso & Alexander Schiersch, 2022. "Let's Switch to the Cloud: Cloud Adaption and Its Effect on IT Investment and Productivity," Discussion Papers of DIW Berlin 2017, DIW Berlin, German Institute for Economic Research.
    6. Gilbert Cette & Aurélien Devillard & Vincenzo Spiezia, 2022. "Growth Factors in Developed Countries: A 1960–2019 Growth Accounting Decomposition," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 64(2), pages 159-185, June.
    7. Rafael Myro, 2019. "A policy for a new industrial revolution," Economia e Politica Industriale: Journal of Industrial and Business Economics, Springer;Associazione Amici di Economia e Politica Industriale, vol. 46(3), pages 403-414, September.
    8. Byrne, David M. & Corrado, Carol A., 2020. "The increasing deflationary influence of consumer digital access services," Economics Letters, Elsevier, vol. 196(C).
    9. Robert J. Gordon & Hassan Sayed, 2020. "Transatlantic Technologies: The Role of ICT in the Evolution of U.S. and European Productivity Growth," NBER Working Papers 27425, National Bureau of Economic Research, Inc.
    10. Erumban, Abdul A., 2024. "Informality and aggregate labor productivity growth: Does ICT moderate the relationship?," Telecommunications Policy, Elsevier, vol. 48(1).
    11. Choudhry, Sonam, 2021. "Is India's formal manufacturing sector ‘hollowing out’- importance of intermediate input," Structural Change and Economic Dynamics, Elsevier, vol. 59(C), pages 533-547.

    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. Dave Byrne & Carol Corrado, 2017. "ICT Prices and ICT Services: What Do They Tell Us About Productivity and Technology," International Productivity Monitor, Centre for the Study of Living Standards, vol. 33, pages 150-181, Fall.
    2. David M. Byrne & Carol Corrado, 2017. "ICT Asset Prices : Marshaling Evidence into New Measures," Finance and Economics Discussion Series 2017-016, Board of Governors of the Federal Reserve System (U.S.).
    3. David M. Byrne & John G. Fernald & Marshall B. Reinsdorf, 2016. "Does the United States Have a Productivity Slowdown or a Measurement Problem?," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 47(1 (Spring), pages 109-182.
    4. David Byrne & Stephen D. Oliner & Daniel E. Sichel, 2017. "Prices of high-tech products, mismeasurement, and the pace of innovation," Business Economics, Palgrave Macmillan;National Association for Business Economics, vol. 52(2), pages 103-113, April.
    5. Landon Kleis & Paul Chwelos & Ronald V. Ramirez & Iain Cockburn, 2012. "Information Technology and Intangible Output: The Impact of IT Investment on Innovation Productivity," Information Systems Research, INFORMS, vol. 23(1), pages 42-59, March.
    6. Edquist, Harald & Henrekson, Magnus, 2017. "Swedish lessons: How important are ICT and R&D to economic growth?," Structural Change and Economic Dynamics, Elsevier, vol. 42(C), pages 1-12.
    7. Charles R. Hulten, 2010. "Decoding Microsoft: Intangible Capital as a Source of Company Growth," NBER Working Papers 15799, National Bureau of Economic Research, Inc.
    8. Christos Genakos & Kai‐Uwe Kühn & John Van Reenen, 2018. "Leveraging Monopoly Power by Degrading Interoperability: Theory and Evidence from Computer Markets," Economica, London School of Economics and Political Science, vol. 85(340), pages 873-902, October.
    9. Fueki, Takuji & Kawamoto, Takuji, 2009. "Does information technology raise Japan's productivity?," Japan and the World Economy, Elsevier, vol. 21(4), pages 325-336, December.
    10. John G. Fernald & J. Christina Wang, 2016. "Why Has the Cyclicality of Productivity Changed? What Does It Mean?," Annual Review of Economics, Annual Reviews, vol. 8(1), pages 465-496, October.
    11. Diego Comin & Javier Quintana & Tom Schmitz & Antonella Trigari, 2021. "Measuring TFP: The role of profits, adjustment costs, and capacity utilization," Working Papers 2143, Banco de España.
    12. Michael J. Harper, 2007. "Technology and the Theory of Vintage Aggregation," NBER Chapters, in: Hard-to-Measure Goods and Services: Essays in Honor of Zvi Griliches, pages 99-120, National Bureau of Economic Research, Inc.
    13. Gorodnichenko, Yuriy & Talavera, Oleksandr & Vu, Nam, 2021. "Quality and price setting of high-tech goods," Economic Modelling, Elsevier, vol. 98(C), pages 69-85.
    14. David M. Byrne, 2022. "The Digital Economy and Productivity," Finance and Economics Discussion Series 2022-038, Board of Governors of the Federal Reserve System (U.S.).
    15. Meijers, Huub, 2007. "ICT Externalities: Evidence from cross country data," MERIT Working Papers 2007-021, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    16. Paul Chwelos & Ronald Ramirez & Kenneth L. Kraemer & Nigel P. Melville, 2010. "Research Note ---Does Technological Progress Alter the Nature of Information Technology as a Production Input? New Evidence and New Results," Information Systems Research, INFORMS, vol. 21(2), pages 392-408, June.
    17. Jorgenson, Dale W. & Nomura, Koji, 2005. "The industry origins of Japanese economic growth," Journal of the Japanese and International Economies, Elsevier, vol. 19(4), pages 482-542, December.
    18. Oliner, Stephen D. & Sichel, Daniel E. & Stiroh, Kevin J., 2008. "Explaining a productive decade," Journal of Policy Modeling, Elsevier, vol. 30(4), pages 633-673.
    19. Van Biesebroeck, Johannes, 2008. "The Sensitivity of Productivity Estimates," Journal of Business & Economic Statistics, American Statistical Association, vol. 26, pages 311-328.
    20. repec:cuf:wpaper:577 is not listed on IDEAS
    21. Haskel, Jonathan & Edquist, Harald & Goodridge, Peter, 2019. "Productivity, Network Effects and Telecommunications Capital: Evidence from the US and Europe," CEPR Discussion Papers 13910, C.E.P.R. Discussion Papers.

    More about this item

    Keywords

    Cloud computing; Computer software and internet services; High-performance computing; ICT services; Information and communications technology; Prices; Price measurement; Productivity; Technology;
    All these keywords.

    JEL classification:

    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • E01 - Macroeconomics and Monetary Economics - - General - - - Measurement and Data on National Income and Product Accounts and Wealth; Environmental Accounts
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • L86 - Industrial Organization - - Industry Studies: Services - - - Information and Internet Services; Computer Software
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

    NEP fields

    This paper has been announced in the following NEP Reports:

    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:fip:fedgfe:2017-15. See general information about how to correct material in RePEc.

    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: Ryan Wolfslayer ; Keisha Fournillier (email available below). General contact details of provider: https://edirc.repec.org/data/frbgvus.html .

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

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.