Transcript IT, Global Business Model, Econ Well-being

Information Technology, Globalization, and Growth:
Production Economies of Scale or Trade in Variety Benefits
Dr. Catherine L. Mann
Barbara ’54 and Richard M. Rosenberg Professor of Global Finance
International Business School, Brandeis University
Ascent After Decline: Re-Growing Economic Growth
Workshop, November 19, 2010 World Bank
Three Factors Relate ICT and Growth
 Production of ICT:
 Gains from TFP and Economies of Scale
 Consumption/Use of ICT:
 Gains from Use of Variety
 International Trade in ICT
 Gains from Import via Terms of Trade
 What is the Relative Importance for Growth?
Production, Use, Trade in ICT
Domestic Focus
ICT sector must keep
growing as a share of
the economy to
continue the gains
Capital-intensive
production; job gains
slow
[Mann (2006, Fig 2.4]
*Terms of Trade: Prices of exports/prices of imports
Trade Focus
Export ICT to keep
gains from EOS and
TFP?
Falling ICT prices
means terms of
trade (TOT)* move
against
the ICT exporter
Evidence: Gains from Production and EOS
 Total Factor Productivity (TFP) in ICT
TFP in ICT industries is higher than rest of economy
~ 8 % in ICT-producing vs. ~ 3% in ICT-using
(1979-02) [ Van Ark (2005)]
 Economies of Scale (EOS) in ICT production
ICT EOS accounts for 30% of US ICT TFP
(1978-99) [Chun and Nadiri (2008)]
Evidence: Gains from Import and Use
 Terms of trade favor the ICT importer
Falling ICT prices => 0.3pp increase in US TFP (92-99)
[Mann (2003)]
 TFP increases more for ICT-using industries
TFP in ICT-using industries increases 250% vs. only 30%
in ICT-producing (79-95 vs. 95-02). [Van Ark (2005)]
Evidence: Gains from Trade and Variety
 Export variety increases TFP
Accounts for 40% of the difference in TFP across countries
Mostly due to variety in electronics [Feenstra and Kee (2007)]
 Import variety increases TFP
Accounts for 25% of TFP growth of developing countries
[Broda, Greenfield, Weinstein (2006)]
Economic Growth (measured using social surplus)
ICT, Trade, and Growth: No variety
Net Imports
Net Exports
Gain ~ TOT effect
Loss ~ TOT effect
Net Imports of IT ------------------ Net Exports of IT
Economic Growth (measured using social surplus)
ICT, Trade, and Growth: Add variety
Net Import
High Variety; Domestic use
Net Export
Low Variety: Economies of Scale
Accentuates TOT Gain
In export production
Offset TOT loss
Net Export
High Variety
Offset TOT loss
Net Import
Low Variety: Supply Chain
In imported intermediates to export supply chain
Net Imports of IT ------------------ Net Exports of IT
Take to the Data: Social Savings
Social Surplus (A+B+C) is larger with





PriceIT
Higher income elasticity of demand for IT (b)
Higher price elasticity of demand for IT (g)
Bigger fall in PriceIT
Larger Real GDP
More IT intermediates and IT externalities
P0
A
P1
C
B
Total DemandIT
Direct DemandIT
E0/P0
E1/P1
Take to the Data: Social Savings
 Social Savings by Country
Elasticities from Bayoumi and Haacker
 (time and country effects)
β (price elasticity) = -1.31
g (income elasticity) = 1.58
Real IT prices, Country-specific (current data 1999-2006)
IT prices from BLS => assumes global market IT prices
Country GDP deflator => country-specific relative price IT
Take to the Data: Trade in IT
 Trade in IT by country (2003–2006)
Production less expenditure
Real IT expenditure, Country-Specific
Reed Electronics
Real Production, country-specific
WITSA
Take to the Data: Variety in Trade of IT
Herfindahl indexes of variety in trade
H* k j = ((S (i=1 to N) s2 i k) - (1/N k))/(1- 1/N k)
Country j; , Sik is the share of product (i) in total imports/exports of the ‘product
group’ (k) and Nk is the total number of products in the ‘product group’ (k).
Product (i) = 178 product classes, 6-digit HS from COMTRADE
Country (j) = 45 countries
Segment (k) = 5
Market segments (k) correspond to the OECD semi-aggregates of
telecommunications, computer and related equipment, electronic components,
audio and visual equipment, other ICT goods (medical devices, GPS,
instruments…)
Economic Well-being Social Saving (%GDP)
Take to the Data
data
hypothesis
Source: Mann (2010)
Net IT Trade: (IT Production-expenditure) %GDP
Take to the Data: Net Importers
On average
net IT imports
strongly related
to Economic
Well-being
BUT
Dispersion of
countries
around trend
Can Variety
help explain?
Take to the Data: Net Exporters
On average
net IT exports
NOT related
to Economic
Well-being
AND
Huge Dispersion
of country
experience
Can Variety
help explain?
Variety and Country Experience
Concentrated net
exporter, lower
well-being
Variety net Importer
and net exporter,
Highest Well-being
Concentrated net
importer, medium
Well-being
Tallest Export Bars: EOS Gains but negative TOT
Shortest Import and Export Bars: Variety Gains, TOT Gains
Conclusions
1) Net Importers gain more than net exporters of IT
 On average, terms of trade dominate
2) But, many net exporters do gain
 Imported intermediates in an IT supply chain
3) Variety of imports and exports explain country
deviation from average
 Lower growth  more concentrated exports, imports
 Higher GDP/per capita  higher variety imports
ICT Strategies To Maximize Growth
1) Start as part of a supply chain:

Countries without global engagement in IT have worst growth
2) But, exporting only, gives up potential gains from ICT

Loss on Terms of Trade and lack of variety imports
3) Maximize TFP and growth with
 Domestic production for export
 High variety imports for highest